No. 32 July 2019 Bankieri Publication

BANKS AND SUSTAINABLE DEVELOPMENT AAB MEMBERS www.aab.al

CONTENT Editorial Sustainable Development & Finance - A train, banks in Albania will climb in soon Prof. Asoc. Dr. Elvin MEKA 5 Bankieri No. 32, July 2019 Frontline Publication of Albanian Association of Banks Putting the banking industry in the driver’s seat of the sustainable development agenda Puleng Tumelo NDJWILI-POTELE 6 The Role for banks in Sustainable Finance - Views from the European Banking Federation Sébastien de BROUWER 8 No. 32 July 2019 Publication Developing Sustainable Finance: Conclusions of the Central Banks’ Network for Greening Bankieri Financial Systems Sean GOODIER Dejan VASILJEV 11 Banks in the changing world of financial intermediation nga McKinsey 13 EIB and sustainable finance Ines HOBDARI Alessandro BRAGONZI 16 International Crisis of 2007/2008 had a small impact: Greek Crisis hit hard Prof. Charoula APALAGAKI 19 NPL Market and credit growth in the Republic of Serbia Vladimir VASIĆ 23

Banking System BANKS AND OTP BANK Albania - An ambitious bank for developing the Albanian banking market 27 SUSTAINABLE DEVELOPMENT Bledar SHELLA Tirana Bank - Consolidation and its further growth; objectives for 2019 Dritan MUSTAFA 28

Experts' Forum Three effective strategies to fight informal economy Vladimir DJORDJEVIC 30 BASEL III and its impact on the banking sector EDITORIAL TEAM: Rajmond PAVACI 32 Elvin Meka Social Development Goals 34 Editor-in-Chief Eftali Peçi The Albanian Association of Banks (AAB) celebrates its 20th anniversary 39 Coordinator Junida Tafaj (Katroshi) The Albanian Association of Banks organizes the conference on “Banks for Sustainable Collaborator Development” 41 Dorina Zarka Photographer AAB: Activities 44 Design & Layout: FCB Afirma AAB: Trainings 45 Printed by:

Bankieri is the official publication of EDITORIAL BOARD: the Albanian Association of Banks which mainly focuses on the Albanian Silvio PEDRAZZI Andi BALLTA Hysen ÇELA AAB Chairman & CEO AAB Executive Committee Chairman of Albanian banking industry. Bankieri provides of Intesa Sanpaolo Bank Member & CEO Institute of Authorized readers with valuable information on Albania of American Bank Chartered Auditors (IEKA) of Investments the financial industry's developments Spiro BRUMBULLI Maltin KORKUTI in general, and of commercial banks Ervin KOÇI Secretary General, AAB Executive Committee Chairman of Albanian Albanian Association of in particular. Member & CEO Financial Supervision Banks of Credins Bank Authority ALBANIAN ASSOCIATION OF BANKS Street "Ibrahim Rugova" Dritan MUSTAFA Adrian CIVICI AAB Executive Committee Dean, Faculty of SKY TOWER, 9/3, Tirana Member & CEO of Tirana Economics, Mediteranean Tel: ‘+355 4 2280371/2 Bank University of Albania Fax: +355 4 2280 359 www.aab.al

July 2019 Bankieri 3 www.aab.al

4 Bankieri July 2019 www.aab.al EDITORIAL Sustainable Development & Finance A train, banks in Albania will climb in soon

The most striking challenge for banks is redrafting and reshaping the traditional “short-term” vision of performance and profitability into “long-term” and socially-responsible ones, which will better serve to future generations.

SDGs and environment topics, so far, and national issues any more, as we have seen several international they cannot be limited and controlled initiatives that use the “green” and at the individual state borders. Said “sustainable” concept, like: UN that, the day banks in Albania must Environment Programme Finance consider aligning their activity Initiative (UNEP FI) and Principles for according to sustainable finance is Responsible Banking, green bonds getting near; so is the challenge they issuance, by development banks and need to be prepared in this regard. private sector, etc. Probably the most striking challenge Where do banks in Albania stand for them is redrafting and reshaping in this sustainable, environmental the traditional “short-term” vision and green landscape? Banks in of performance and profitability into Albania have been so keen and “long-term” and socially-responsible attentive towards corporate one, which will better serve to future Prof. Asoc. Dr. Elvin MEKA1 social responsibility, by putting generations. This would require Editor-in-Chief considerable funds, efforts and industrious efforts towards crafting energy, though years. During recent and using specific products, actively years, they have been adapting and linked with environment, climate pursuing their CSR entirely through and sustainability. Surely, banks he issue of Sustainable SDGs. Also, several banks have been cannot do it alone; financial system’s Development, and subsequently, promoting and using, for years, a regulators, even the government Tthe sustainable finance limited number of “eco” and “green” (both central and local) could help concept, started to develop, at least ideas and products. Nevertheless, a great deal in this regard, through officially, since 1992, at the Earth there is still a long way, for banks in regulations (relaxed requirements Summit in Rio de Janeiro, Brazil Albania, towards working according for “green” banking products), tax (in June 1992), where more than to sustainable development and policies (preferential tax treatment 178 countries adopted Agenda 21, a finance principles, or otherwise for investing in “green” instruments comprehensive action plan to build incorporating them as their natural issued by public and private sector), a global partnership for sustainable business activity. What can be seen issuance of “green” instruments development, to improve human lives as “positive” in this regard is that with (especially local government and and protect the environment. The very few exceptions, this is the reality corporations), and so on. The issue has been evolving incessantly, for most of countries, even for those economy, climate and environment up to 2015, when UN approved 17 with economies far more advanced matter us all, including banks as SDGs, which mark a quality turning and sophisticated than Albania. game changers in this regard! point, for financial institutions But such reality won’t last long, and not only, in terms of actively either in the world, or in Albania. addressing and incorporating Sustainable Development and environment and other climate- Finance is a train, banks in Albania, related risks, within their day-to day will, unavoidably, climb in soon, 1Dean of Faculty of Economy, activity. Along with traditional banks’ because climate, environmental Business and Development, CSR activities, focused on separate risks and economy are not isolated European University of Tirana, UET.

July 2019 Bankieri 5 www.aab.al FRONTLINE Putting the banking industry in the driver’s seat of the sustainable development agenda

A bank would identify and assess its most significant social, economic and environmental impacts, both positive and negative, resulting from its activities, products and services, and set targets that aim to align those impacts with the objectives and targets in the SDGs, the Paris Climate Agreement and other relevant frameworks.

in their countries, banks have combined assets, together with significant influence over what gets the UN Environment Programme financed, positioning them well Finance Initiative (UNEP FI). They to make significant contributions are built in a way that allows any towards the achievement of the bank to sign up, regardless of its SDGs, the Paris Climate Agreement, level of experience with sustainable and national policy goals. Banks that finance. fail to make substantial contributions The six Principles require a bank’s to the needs and goals of their business strategy to be geared societies will find it increasingly towards contributing to the SDGs, difficult to remain competitive and the Paris Climate Agreement, and relevant in a climate where their other relevant national or regional stakeholders (including regulators, frameworks. Banks need to take a civil society, investors, competitors) holistic approach to their impacts Puleng Tumelo NDJWILI-POTELE consistently challenge them to by assessing both direct and Banking Project Coordinator show how they are responding indirect impacts and work towards UN ENVIRONMENT PROGRAMME to the challenges of sustainable increasing their positive impacts, FINANCE INITIATIVE development, and managing while reducing the negative impacts risks that could destabilize their connected to their operations businesses, and consequently their and lending activities, they also economies. To build trust with their need to manage and mitigate he sustainable development stakeholders and communities, their risks. The more significant agenda continues to grow banks need to generate value for impacts, associated with a bank’s Tin importance and urgency. their societies, while making profit activities will generally be rooted The world is currently faced with for their shareholders. in its lending, and therefore banks pressing challenges, which include The Principles for Responsible should work with their clients economic development, climate Banking provide guidance to banks and customers towards achieving change, environmental degradation, for driving lending, that contributes more sustainable outcomes, and poverty, inequality, and financial to sustainable development. engage and/or partner with other inclusion. Current financing for the These voluntary Principles offer a stakeholders to accelerate positive Sustainable Development Goals comprehensive framework that will impact. Banks must ensure that (SDGs) is insufficient and poorly help banks embed sustainability their governance structures coordinated, and the latest IPCC across their entire businesses, and processes are adequate for report tells us that we need to keep meaning that the well-being of delivering on their commitments global warming below 1.5 degrees people and the planet are at the to the Principles. Lastly, the Celsius, in order to avoid severe and core of their decision-making and Principles require transparency and irreversible impacts on the earth activities. The Principles have accountability from banks through and our livelihoods. been shaped by 28 leading banks, publicly reporting on the progress As the leading providers of finance representing USD 17 trillion in they are making in implementing

6 Bankieri July 2019 www.aab.al the Principles. endorsed the Principles, therefore regulators, banking associations, A powerful way for banks to committing to become signatories and civil society organisations, that demonstrating and progressively to the Principles for Responsible have endorsed the Principles to improve their contribution to Banking. These banks are part of exhibit their support for them. sustainable development is by a growing community of UNEP FI The Principles have been through setting targets that address a an extensive six-month public bank’s most significant impacts. A consultation process, in which bank would identify and assess its banks, investors, regulators and civil most significant social, economic society, amongst others, contributed As the leading providers of and environmental impacts, both input that ensures the Principles positive and negative, resulting finance in their countries, banks represent the global benchmark for from its activities, products and have significant influence over a sustainable banking system fit for services, and set targets that aim what gets financed, positioning the 21st century. to align those impacts with the them well to make significant Bank CEOs who commit to becoming objectives and targets in the SDGs, contributions towards the signatories to the Principles will the Paris Climate Agreement and congregate at the UN Headquarters achievement of the SDGs, the other relevant frameworks. in New York, during the UN General The legitimacy of the Principles is Paris Climate Agreement, and Assembly, to sign the Principles derived from the accountability and national policy goals. for Responsible Banking, officially transparency mechanisms. Banks becoming the Founding Signatories are required to report publicly to the Principles. The Principles are on their implementation of the designed to leverage the potential Principles, including their positive member banks that are committed the banking industry has to drive the and negative impacts, risks, and to sustainable finance. They will achievement of the SDGs, the Paris targets. This reporting will be benefit from sharing their knowledge Climate Agreement, and national subject to an assessment process, and experience with each other, and policy goals, thereby creating a with consequences for banks that from support and guidance from stronger global economy and better consistently fail to show progress the UNEP FI Secretariat, as well as world for everyone, everywhere. We over time. Recognizing that banks subject matter experts, providing encourage you to get involved! are at different stages in their banks with direct access to expert Learn how your bank can become sustainability journeys, banks will knowledge, tools and resources a Signatory to the Principles for have up to four years from becoming to help capacitate themselves Responsible Banking at signatories to the Principles to and strengthen their positioning www.unepfi.org/responsiblebanking. implement all of the requirements as leaders in sustainable finance. of the Principles. These banks are joined by 26 More than 70 banks have already stakeholders, which include

July 2019 Bankieri 7 www.aab.al FRONTLINE The Role for banks in Sustainable Finance Views from the European Banking Federation The goal should be a financial system in which all gains (financial, societal and environmental) are completely engrained. At which point, we will no longer need to talk about sustainable finance as, by definition, all finance will be sustainable.

Awareness raising has brought and the well-being of our people.” Sustainable Finance to the heart of Both public and private sectors need the current political agenda in Europe. to work together to achieve changes. The European Union is committed to The transformation can only be playing a leading role in the global achieved with the banking sector fight against climate change. The taking an active role, as important ambition is to make Europe the most investments must be financed. This advanced capital market, where is especially true in Europe, where companies and retail investors banks finance two thirds of the are encouraged (with the help of economy. More particularly, when it digital tools and solutions) to shift comes to Sustainable Finance, we at their investment to environmentally the EBF believe in 4 E’s: Enabling, friendly projects, thereby contributing Encouraging, Engaging and Educating. to the EU's sustainable and carbon- Sébastien de BROUWER neutral agenda. It is in this context, Enabling Chief Policy Officer the European Commission adopted The European Commission’s EUROPEAN BANKING FEDERATION, last year, in March 2018, an ambitious leadership substantially accelerated EBF Action Plan for Sustainable Finance, the sustainability agenda across which was followed up by three Europe. Voluntary actions and here is non-controversial legislative proposals (on taxonomy, exemplary moves from leading scientific evidence of global disclosure requirements and financial institutions and businesses are not Twarming, and its negative effects benchmarks). It lays ground for sufficient to mobilize finances at are already felt around the world. The reorienting capital flows towards the required scale and pace, nor present climate change will have a sustainable investments, and for enough to transform all aspects of progressively significant impact on embedding long-termism within our society. Public action is needed economies, societies and markets. the financial sector. It also aims to help banks and markets channel There is also growing evidence to improve the handling of climate financing to societally beneficial suggesting that climate change and change risks in the financial sector. purposes. Private initiatives are great, environmental risks have important The public sector cannot, however, do but they must be complemented implications for financial stability, it alone. As stated by V. Dombrovskis, by smart regulatory frameworks that cannot be disregarded. Growing Vice-President for the Euro and Social that take away uncertainty, ensure awareness on this impact has Dialogue, Financial Stability, Financial comparability and allow competitive compelled governments to act and Services and Capital Markets Union: solutions, that enable the financing they agreed, accordingly, in the Paris “the financial sector needs to throw of the transition to more sustainable Agreement to put policies in place to its full weight behind the fight against economies on a level playing field. It limit the global rise in temperatures climate change. This is a challenge, is why the EBF is supportive of the to 2°C, and preferably as close to but also an exceptional opportunity. European Commission Action Plan for 1.5°C, as possible. In the next few years, Europe’s banks Sustainable Finance. Along with reflecting upon the risks, and financial institutions have a this requires massive investments chance to drive global developments Encouraging and reallocation of capital. Europe in sustainable finance. By moving to Enabling is not sufficient, if markets alone is estimated to have a an economy based around low-carbon are to be mobilized at the required sustainability investment gap of technology and resource-efficiency, size and speed. Positive research roughly to EUR 180 billion per year. we can boost job creation, productivity, and evidence on the performance,

8 Bankieri July 2019 www.aab.al both in terms of risk and profitability unsustainable assets. financial impact of these risks. Having of the sustainable investments, are said that, data and methodologies are emerging. Environmental, Social and Engaging slowly emerging, also thanks to the Governance (ESG) leaders are not Banks are also acting together to enhanced disclosures, enabling their only in the position to anticipate more leverage and amplify individual progressive incorporation into risk effectively future climate-related efforts. For example, 28 leading management and internal processes. risks and opportunities but are also banks from around the globe, Still, more work together will be expected to see the cost of equity including nine from Europe, developed necessary to improve our knowledge and debt going down. Well rated with the UNEP FI, the Principles of ESG risks, to identify challenges ESG companies have less volatile for Responsible Banking. These and to work on solutions, as well equity and bonds, and also better Principles align banks with society’s as building partnerships to raise performance. Smart companies, goals as expressed in the Sustainable awareness and scale up competences. using sustainability strategies, are Development Goals (SDGs) and the This brings us to the last “E”. gaining competitive advantage, often Paris Climate Agreement. The EBF with help of innovative technologies. was amongst the first endorser and Educating On the demand side, most of the promoter of the Principles which Financial education is important in retail investors would want to have a great potential to accelerate empowering people with skills and invest sustainably. Despite these the transition of the banking competences, which help them ask the positive developments, we are still sector and consequently the whole right questions and make the correct talking about a substantial financial economy towards the sustainable choices when it comes to saving and investment gap. There is no shortage path. Sustainability and particularly, investing, including, on sustainability of capital. It is a question of redirecting climate change, will leave no sector risks. Education on sustainability the flows where the impact would untouched. As a result, there is e a should include the financially make the most difference. need to reinforce the dialogue with trained professionals to help them While lack of taxonomy and data, as stakeholders, including banks’ clients understand sustainability risks more well as insufficient pipeline may play at European level, to understand the thoroughly, and to measure, integrate a role in markets not picking up at the impact of the “sustainability agenda” and price them more accurately. required scale, both legislative and on respective business models, Further integration of financial non-legislative frameworks have to be strategies and risk management. industry experts in training programs reviewed to encourage and reward the Gathering experts from all over on how to approach sustainability is shift towards sustainable economy. Europe, the EBF Sustainable Finance necessary. From portfolio managers, The EBF is preparing a report that will Working Group is prepared to engage to risk managers, from Board rooms focus on limited number of incentives, with key actors and decision-makers to financial advisers, sustainability with a potential to scale up sustainable on ESG-related issues. The WG has should be an integral part of everyday finance in the banking sector. The organized itself so that it can provide processes and decision-making. chosen approach is for a limited the European Commission with timely number of incentives, most relevant and relevant input on the key aspects Conclusion from the banking perspective. Green of its Action Plan, notably, taxonomy, Banks have a clear and key role securitization, review of prudential green bonds, indices and metrics, in sustainable finance. It is about treatment of sustainable assets, and finally incentives/disincentives connecting sustainability with where there is indication of lower risk, as an extra topic of critical interest financial objectives. While it will take as well as public intervention in the for banks. Very important too, is to time and different stakeholders will form of guarantees, tax benefits and engage with banking regulators and find themselves at different levels of subsidies may substantially contribute supervisors to rethink together the the scale - adopting a different pace to mainstreaming sustainable ways the financial system approaches and approach - the trend is clearly set. activities and their financing. The sustainability, transparency, and long- The goal should be a financial system Report will be published in the coming term risks. Whereas climate risks are in which all gains (financial, societal months to feed the reflection of the considered ever more as financial and environmental) are completely Commission, the Parliament as well risk, given the lack of data and limited engrained. At which point, we will no as the European Banking Authority know how when it comes to calculation longer need to talk about sustainable (EBA), as an input to its report on and modelling, risk managers still finance as, by definition, all finance prudential treatment of sustainable/ find it challenging to calculate the will be sustainable.

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10 Bankieri July 2019 www.aab.al FRONTLINE Developing Sustainable Finance: Conclusions of the Central Banks’ Network for Greening Financial Systems1

Network for Greening the Financial System was established in December 2017 by eight founding Central Banks, including French, German, Dutch, and UK central banks, among others. The network – a “coalition of willing central banks” – has now grown to more than thirty members, including IFI observers, such as the EBRD and the World Bank Group.

he recognition of climate change and magnitude, foreseeable in as a financial risk is propelling the nature, uncertain in its time horizon Texpansion of sustainable finance and dependent on short-term – legislative and regulatory reforms actions given that the size of future led by the European Commission, impacts will be determined by work by IFI’s on the development of today’s actions. Understanding and green finance instruments and more managing the complicated nature recently, the establishment of the of these risks and their implications “Network for Greening the Financial for the financial system requires co- System” (NGFS) – an important ordination between central banks and “coalition of willing” Central Banks national authorities from across the which are working on understanding globe. There is a need for collective mechanisms by which climate and leadership and actions across environmental risks affect their countries. Sean GOODIER mandates, but also on what they can And so – in December 2017 – the FCA do to support the transition to more Network for Greening the Financial sustainable financial systems. System was established by eight The mandates of central banks founding Central Banks, including have changed remarkably since the French, German, Dutch, and UK 2008 financial crisis and their remits central banks, among others. The are recently beginning to expand into network – a “coalition of willing the area of climate change. Central central banks” – has now grown to banks are well – placed to take on this more than thirty members, including role through their capacity as both IFI observers, such as the EBRD and regulators – who can stress-test the the World Bank Group. ability of firms to deal with climate The NGFS aims to build on other risks and encourage climate related international initiatives which focus disclosures – and also guardians on climate-related financial risks – of financial stability – who can set including the Task Force on Climate- capital requirements for institutions related Financial Disclosures, G20 to account for climate-related risks. Green/Sustainable Finance Study However, climate-related Group, as well as broader activity, risks have a number of distinctive such as the Paris Agreement and characteristics which, in combination, Sustainable Development Goals. Dejan VASILJEV mean that they require a strategic To put it in context, the mechanisms EBRD approach to management. Climate by which climate and environmental change is far-reaching in its breath risks can affect financial stability

1 The article represents personal views and not those of FCA nor EBRD.

July 2019 Bankieri 11 www.aab.al are still relatively poorly understood the People’s Bank of China is currently and knowledge sharing amongst – this central banking forum is the only NGFS member to promote stakeholders to improve their at the forefront of developing our green finance via its own dedicated understanding of how climate-related understanding of these risks. monetary policy. factors translate into financial risks The network has two main Thirdly – national authorities and opportunities. objectives: to contribute to the should share data relevant to Climate The final two recommendations analysis and management of climate Risk Assessment and potentially are aimed not only at central bankers and environment-related risks in but more broadly at regulators. the financial sector and mobilize The NGFS seeks to achieve robust mainstream finance to support the and internationally consistent transition towards a sustainable climate and environmental related global economy. Climate-related risks have disclosure which will be integral In April this year NGFS published a number of distinctive to an efficient and well-functioning its first comprehensive report, which capital market with an effective characteristics which, in includes six key recommendations price mechanism for climate related for central banks, supervisors and combination, mean that they risks. Finally, the network strongly policymakers to enhance their role in require a strategic approach to encourages regulators to develop greening the financial system. These management. Climate change taxonomies which aim to facilitate reflect the best practices, identified is far-reaching in its breath and financial institutions’ identification, by NGFS members to facilitate the magnitude, foreseeable in nature, assessment and management of role of the financial sector in helping climate and environmental risks – as uncertain in its time horizon and to achieve the objectives of the Paris well as mobilize capital for green and Agreement. dependent on short-term actions low - carbon investments, consistent Firstly – and most importantly given that the size of future with the Paris Agreement. The work – climate-related risks should be impacts will be determined by of the European Commission is a very integrated into micro-supervision today’s actions. positive step towards this. and financial stability monitoring. So what are the next steps for the Before this happens, it is essential NGFS? There is still a lot of analytical that such climate-related risks are work that is needed to equip central adequately assessed – and this make this publically available in a data banks and supervisors with the includes both physical risks (the value repository. This will help to bridge tools they need to identify, quantify of financial assets lost, as a result of the data gap that is currently one of and manage climate change risks climate change and natural disasters) the main challenges for supervisors. in the financial system. And more and transition risks (the legal and And the fourth is that central banks, broadly – the network is seeking to adjustment cost that the financial supervisors and financial institutions expand its engagement with relevant sector will incur in transitioning should build awareness and in- stakeholders to ensure a mutually towards a lower-carbon economy). house intellectual capacity as well beneficial exchange of experience and It also requires strong engagement as encourage technical assistance information. with financial institutions to raise awareness of climate - related financial risks and that are able to identify, analyze and report them. The second recommendation is that sustainability factors should be integrated into portfolio management. Here – central banks should lead by example in their own operations through integrating such factors in the management of their own portfolios – taking into account different institutional arrangement in each jurisdiction. It must be noted that

12 Bankieri July 2019 www.aab.al FRONTLINE Banks in the changing world of financial intermediation

Banks sit at the center of a vast, complex system that intermediates more than US$ 260 trillion in global funds. What happens when the system itself is significantly streamlined and reshaped?

by McKinsey1 November 2018 Report

decade after a financial crisis that shook the world, the global Abanking industry and financial regulators have worked in tandem to move the financial system from the brink of chaos to a solid ground with a higher level of safety. In numerical terms, the global Tier 1 capital ratio – one measure of banking system safety – increased from 9.8 percent in 2007 to 13.2 percent in 2017. Other measures of risk have improved as well; for example, the ratio of tangible equity to tangible assets has increased from 4.6 percent in 2010 to 6.2 percent in 2017. Performance has been stable, particularly in the last five years or Picture 1 so, and when the above-mentioned increases in capital are figured in (Exhibit 1), but not spectacular. Global banking return on equity (ROE) has hovered in a narrow range between 8 and 9 percent, since 2012 (Exhibit 2). Global industry market capitalization increased from US$ 5.8 trillion in 2010 to US$ 8.5 trillion in 2017. A decade after the crisis, these accomplishments speak to the resiliency of the industry. But growth for the banking industry continues to be muted – industry revenues grew at 2 percent per year over the last five years, significantly below banking’s historical annual growth of 5 to 6 percent.

Picture 2

1 This article was originally published by McKinsey & Company, www.mckinsey.com. Copyright (c) 2019 All rights reserved. Reprinted by permission.

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Compared to other industries, the ROE of the banking sector places it squarely in the middle of the pack. However, from an investor’s point of view, a jarring displacement exists. Banking valuations have traded at a discount to nonbanks since the 2008–09 financial crisis. In 2015, that discount stood at 53 percent; by 2017, despite steady performance by the banking sector, it had only seen minor improvements at 45 percent (Exhibit 3). What do investors know, or think they know, about the future prospects for the banking industry? In part, low Picture 3 valuation multiples for the banking industry stem from investor concerns about banks’ ability to break out of the fixed orbit of stable but unexciting performance. Lack of growth and an increase in nonperforming loans in some markets may also be dampening expectations. Our view, however, is that the lack of investor faith in the future of banking is tied in part to doubts about whether banks can maintain their historical leadership of the financial-intermediation system. By our estimates, this financial-intermediation system stores, transfers, lends, invests, and manages risk for roughly US$ 260 trillion in funds. The revenue pool associated with intermediation – the vast majority of which is captured by banks – was roughly US$ 5 trillion in 2017, or approximately 190 basis points. (Note that as recently as 2011, the average was approximately 220 basis points.) Picture 4

Banks’ position in this system is under threat. The dual forces of technological (and data) innovation and shifts in the regulatory and broader sociopolitical environment are opening great swaths of this financial-intermediation system to new entrants, including other large financial institutions, specialist-finance providers, and technology firms. This opening has not had a one-sided impact nor does it spell disaster for banks. Where will these changes lead? Our view is that the current complex and interlocking system of financial intermediation will be streamlined by the forces of technology and regulation into a simpler system with three layers (Exhibit 5). In the way that water will always find the shortest route to its destination, global funds will flow through the intermediation layer that best fits their purpose. The first layer would consist of everyday commerce and transactions (for example, deposits, payments, and consumer loans). Intermediation here would be virtually invisible and ultimately embedded into the routine digital lives of customers. The second and third layers would hinge on a barbell effect of technology and data, which, on one

14 Bankieri July 2019 www.aab.al hand, enables more effective human interactions and, on the other, full automation. The second layer would also comprise products and services in which relationships and insights are the predominant differentiators (for example, M&A, derivatives structuring, wealth management, corporate lending). Leaders here will use artificial intelligence to radically enhance but not entirely replace human interaction. The third layer will largely be business to business, such as scale-driven sales and trading, standardized parts of wealth and asset management, and part of origination. In this layer, institutional intermediation would be heavily automated and provided by efficient technology infrastructures with low costs. This condensed financial- Picture 5 intermediation system may seem like a distant vision, but there are parallel examples of significant structural change in industries for those firms that are clear about other than banking. Consider the The right path for each bank will, their true competitive advantage impact of online ticket booking and of course, differ based on its current and then make – and follow through sharing platforms, such as: Airbnb sources of competitive advantage on – definitive strategic choices. The on travel agencies and hotels or how and on which of the layers matches result will be a financial sector that technology-enabled disruptors such its profile – or the profile it intends is more efficient and delivers value to as Netflix, upended film distribution. to take in the future. We believe the customers and society at large. That Our view of a streamlined rewards will be disproportionate is a future that should energize any system of financial intermediation, forward-looking banking leader. it should be noted, is an “insider’s” perspective: we do not believe that customers or clients will really take note of this underlying structural change. The burning question, of course, is what these changes mean for banks. McKinsey’s view is that there will be four strategic options open to banks in the reshaped system:

•the innovative, end-to-end ecosystem orchestrator •the low-cost “manufacturer” •the bank focused on specific business segments •the traditional but fully optimized and digitized bank

July 2019 Bankieri 15 www.aab.al FRONTLINE EIB and sustainable finance

“Sustainability in everything we do – this is our aim when we finance projects in innovation and skills, infrastructure, small and medium-sized enterprises, the environment, climate action and regional cohesion. We carry out due diligence to ensure that projects meet environmental and social criteria, and that they deliver the desired long-term economic benefits. The funds raised in the capital markets through green and sustainable bonds are used for specific projects that make a substantial contribution to sustainable development.”

he EIB Group is the European as well as our multidimensional Union’s long-term financing assistance to the private sector, Tinstitution (the ‘EU Bank’). catalyzing foreign direct investments It provides finance and technical to major investment projects assistance to achieve sustainable, (e.g. Trans Adriatic Pipeline, Fiat inclusive growth through two Auto Serbia, etc.), also offering complementary entities: the assistance to small and medium- European Investment Bank (EIB) and sized enterprises (SMEs) via funding the European Investment Fund (EIF) to European banks in the region, . In 2018, the EIB Group provided all of which reinforces the EU’s EUR 64.2 billion of financing, out enlargement policy. Furthermore, of which EUR 13.8 billion went to in 2016 EIB launched the Economic innovation and skills, EUR 12.3 Resilience Initiative (ERI) following a billion to infrastructure, EUR 23.3 request from the European Council Ines HOBDARI billion for SMEs, and EUR 15.2 billion to address social and economic Senior Banker for environment support. infrastructure gaps and stimulating EUROPEAN INVESTMENT BANK The EIB is the world’s largest private sector-led growth and job multilateral borrower and lender. creation in the region with the aim to Founded in 1958, it operates across tackle the root causes of migration the EU and in more than 130 other and brain drain. To reinforce its countries. While the majority of local presence in 2019, EIB has EIB financing goes to EU Member opened offices in Albania and Bosnia States, the EIB operates globally as Herzegovina, working closely with a multilateral development bank. By the operational team, based in financing investments outside the Luxembourg. These offices, together EU, the EIB actively contributes to with the already active Regional the EU’s external policy objectives. Office in Belgrade, map out the EIB’s Indeed, the EIB is the EU’s key presence in the Western Balkans and instrument for development banking, its commitment to bring the region with an activity volume outside EU of even closer to the European Union. EUR 7.8 billion in 2018. The Western Balkans are a key Climate action is a key priority for priority for lending activity and since the EU and the EIB 2008 the EIB Group has financed over Climate action is a pillar of the EU Alessandro BRAGONZI EUR 8 billion projects in the region. Action Plan on Sustainable Finance Representative for Albania, Kosovo2, and This reflects our commitment to and positioned at the heart of the North Macedonia supporting the construction and EIB strategic framework. In its EUROPEAN INVESTMENT BANK upgrading of key infrastructure, activities, the EIB has played, and

1 From European Investment Bank Group Sustainability Report - https://www.eib.org/en/publications/sustainability-report-2018.htm. 2 This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo Independence Declaration. 3 The EIF is a specialized entity on risk finance (i.e. equity and guarantee) to benefit micro, small and medium-sized enterprises (SMEs) across Europe.

16 Bankieri July 2019 www.aab.al will continue to play, a substantial As a result, in 2018 we exceeded finance – with direct help of EIB’s role in achieving the United Nations’ our 25% Climate action target for the experts in the TEG subgroups Sustainable Development Goals ninth year in a row, providing more tasked with taxonomy and green (SDGs). While the EIB’s lending than EUR 16 billion to fight climate bond standard - is defining clear remains focused on its public policy change. That is over 29% of all our classification criteria for economic goals, namely innovation, SME and financing. We are well on our way activities and related investment mid-cap financing, infrastructure to fulfill our commitment to support instruments. and the environment, we at EIB the implementation of the Paris As a confirmation of the EIB’s believe that support for climate commitment to the SDGs and the EU action is compatible with reaching Action Plan on Sustainable Finance other policy targets. Supporting a in September 2018, the EIB issued its transition towards a carbon-neutral, first EUR 500 million Sustainability Sustainable finance does not mean greener, more resilient and circular Awareness Bond (SAB). SAB that we focus on selected, “pure” economy must go hand in hand. proceeds will initially be dedicated to climate action sectors. Rather, it Against this backdrop, the EIB has supporting water supply, sanitation means ensuring that opportunities been a pioneer on both financing and and flood protection projects. for climate action are sought funding sides, as regarding climate across our whole portfolio. It also action. EIB is prepared to contribute more means that with our activities to climate action we aim to support the economic On the financing side… Sustainable finance does not mean activities that foster the transition The EIB has developed a broad range that we focus on selected, “pure” to a low-carbon and climate of financial instruments to support climate action sectors. Rather, it resilient future. climate – related investments by means ensuring that opportunities public and private sector project for climate action are sought across promoters. This includes reducing our whole portfolio. It also means the risk for certain investors who Agreement, and we will increase that with our activities we aim to would otherwise not support climate our support for Climate action in support the economic activities that – related schemes. These innovative developing countries to 35 percent of foster the transition to a low-carbon climate finance products attract our total lending by 2020. and climate resilient future. Through more private sector finance to the the implementation of the EIB fight against climate change and for …and on the funding side… Climate Strategy, the EIB is aligning the mitigation of its effects, Ensuring The EIB launched the world’s first its activities with the principles and that sustainability is embedded in green bond in 2007. Since then we goals of the Paris Agreement. To this EIB financing means three things: continued fostering the sustainable end, we are working with Multilateral first, certain activities are completely growth of this market, as the largest Development Banks (MDBs) to excluded from EIB financing; second, multilateral issuer, as Chair of the develop a joint MDB approach and projects and investments are subject Green Bond Principles, coordinator we are participating in the OECD to EIB own environmental and social of the International Financial workstream on this subject. principles and standards; and third, Institutions (IFI) Framework for We also recognize that more an economic appraisal is carried Green Bond Impact Reporting needs to be done to tackle climate out to measure a project’s costs Harmonization, and contributor change and that the EIB cannot do it and financial impact to determine of expertise in the European alone, nor can all the IFIs put together. whether society at large gains Commission’s working groups. The The EIB therefore welcomes all new from the investment. We identify Green Bond market has drawn global initiatives aimed at channeling more systematically climate risks for all attention to the climate agenda public funding to climate action, and investment projects, we measure and promoted transparency and especially those aiming to do so in thoroughly the climate components accountability in financial markets a way that enhances the impact of of projects and we increase in a transformational way. The such funding in addressing climate investment in climate adaptation and European Commission’s Technical change - including through increased resilience. Expert Group (TEG) on sustainable leveraging of private capital.

4 https://ec.europa.eu/info/files/190618-sustainable-finance-teg-report-taxonomy_en https://ec.europa.eu/info/files/190618-sustainable-finance-teg-report-overview-green-bond-standard_en

July 2019 Bankieri 17 Përfito nga Super Paga

BanKomaT Prima Debit

www.aab.al FRONTLINE International Crisis of 2007/2008 had a small impact: Greek Crisis hit hard

The international (sub-prime) crisis of 2008 left Greek banks mostly unscathed, with only limited action required. The Greek crisis Përfito nga hit the Greek banking system hard on all fronts: liquidity, asset quality and ultimately capital, in varying degrees. Greek banking system hard on were established, at European all fronts: liquidity, asset quality level, by Directive 2013/36/EU (CRD and ultimately capital, in varying IV), which was transposed in Greek degrees. Profitability suffered law with Law 4261/2014. According seriously, and international to the new requirements, Greek Super Paga presence was considerably credit institutions proceeded in downsized. The prolonged deep significant changes, concerning recession, with high unemployment the composition of their boards as, which fueled NPLs and PSI losses, among other: led to three large-scale re- capitalizations in the region of EUR • all members of boards of 64 billion, with massive dilution for directors must have at least shareholders. In parallel, Greek 10 years of experience at Prof. Charoula APALAGAKI banking system underwent a senior managerial level, in the large-scale consolidation, with the areas of banking, audit, risk BanKomaT Prima Secretary General Debit HELLENIC BANK ASSOCIATION total number of commercial banks management, or distressed (excluding cooperative banks) going asset management, from 19 to just 8, of which only 4 are • the non-executive members deemed “significant”, while most must, additionally to the above, foreign banks withdrew from the have been at least 3 years as verybody is familiar with market. On corporate governance, a board member of a bank, or recent challenges of the Greek banks aligned themselves of a company of the financial EGreek Banking sector, which with the European Directive sector, or of an international nevertheless gradually recovers 2013/36/EU (CRD IV), which was financial institution, and is ready to finance the real transposed in Greek law with the • independent non-executive economy, following the current Law 4261/2014; Board of Directors members - at least 3 - must restrictions and guidelines, among composition altered significantly, have adequate knowledge and others on the sustainable growth. and as a result, the number of the international experience of domestic banks was drastically at least 15 years in relevant A quick view on the changes in reduced from 35 in 2009 to 15 banking institutions of which the Greek Banking system today, of which 8 commercial and at least 3-year experience on Before the crisis, Greek banks 7 cooperative, 4 banks are deemed a board of an international were well capitalized (Core Tier 1 significant and, post consolidation, banking group, not operating of 10.6% in 2010), mildly leveraged control approximately 95% of on the Greek market. These (Loans/Assets at 51%) and banking assets: Piraeus Bank, experts should have no relatively liquid (L/D at 120%). The National Bank of Greece, Alpha affiliation over the previous ten international (sub-prime) crisis Bank, and Eurobank; foreign years with credit institutions of 2008 left Greek banks mostly banks, albeit present in Greece, operating in Greece. unscathed, with only limited action have an insignificant market share. required. The Greek crisis hit the Corporate governance rules Greek banks were committed

July 2019 Bankieri 19 www.aab.al to implement restructuring plans. the bulk of NPEs’ reduction risks, as well as formulate The restructuring plans are is projected to stem from the relevant policy guidelines. commitments to the European business segment (61%) vs. 58% Commission and Directorate- under previous targets. The total As of 2010, a dedicated interbank General for Competition, following reduction of NPEs from 9M17A to committee has been established extensive use of State aid. Basic FY19 targeted stands at EUR 34.5 by the HBA, which monitors, on an commitments were: billion. The total reduction of NPLs, ongoing basis, all the sustainable • Reduce exposure to domestic for the same period, stands at EUR finance/CSR-related issues and non-core business, 31.6 billion. collaborates with relevant national • Reduce exposure to non-Greek stakeholders in this field. One business: HBA Initiatives, in relation to of the most recent initiatives of - divestments from the SEE and Sustainable Finance this dedicated committee is the other regions, The Greek Banking System plays a successful interbank coordination - limit the capital support to pivotal role to achieve sustainable towards the implementation remaining activities, growth, which is consistent with (as of 2018) of the so-called • Scaling down of investment social and environmental policy Environmental and Social portfolios, goals and fully aligned to the Management System (ESMS) • Reduce operating expenses, existing EU and national regulatory by HBA member-banks. ESMS • Downsizing of personnel and framework. In particular, the HBA constitutes a set of procedures, branch network, member banks actively support application forms and actions that • Loans-to-deposits ratio in sustainable finance in lending and became part of banks’ ongoing Greece at below 115%, investments by (inter alia): credit procedures and are taken • Reduction of cost of deposits. into account for the assessment promoting green/sustainable of financing requests, according Greek banks are already products and services, in order to their internal credit policy, delivering on the commitments with to reduce the environmental IFC and EBRD Standards, as well significant divestments of banking footprint and encourage firms as International Best Practices. subsidiary in the SEE region, as and households to adopt It is considered a methodology well as from non-core assets in environmental and social best for identifying and mitigating Greece (insurance, hotels, REIT). practices; environmental and social risks that On aggregate, Greek banks have providing, on an ongoing basis, may arise from business activities committed to reduce: training courses for their of either the bank involved, or the personnel through the launch undertaking concerned. In relation • The absolute amount of NPEs of dedicated programs, either to the ESMS, HBA has produced a from EUR 106.9 billon in by establishing strategic user-friendly information leaflet, September 2016 to EUR 64.6 partnerships at international which is addressed to the corporate billion, by December 2019 level (i.e. with the UNEP clientele of its member banks. This (-40%), Finance Initiative), or by taking information leaflet is available in • The absolute amount of NPLs up relevant initiatives at Greek and in English at the HBA from EUR 78.3 billion in national level; website. September 2016 to EUR 38.6 participating into international In November 2018, the United billion, by December 2019 sustainable indices (e.g. Nations Environmental Programme (-51%). Dow Jones Sustainability Finance Initiative (UNEP FI) has Index, Sustainalytics, oekom launched a public consultation in The abovementioned targets, research, Vigeo ratings, CDP relation to the so-called Principles when achieved, will have no etc.); and for Responsible Banking (PRB), adverse effect on capital. implementing international which were developed in close and EU standards (e.g. ISO collaboration with 28 banks The main drivers to achieve 14001, EMAS) in their internal from around the globe (jointly those targets are: Curing, Write- mechanisms and processes representing more than US$ 17 offs, Collateral liquidations, Sale for analyzing and addressing trillion in assets). These Principles of NPEs. Under the revised targets, environmental and social provide the banking industry with

20 Bankieri July 2019 www.aab.al a single framework that embeds as credit institutions) and inclusive growth; sustainability at the strategic, asset managers;3 and • management of financial portfolio and transactional levels • the establishment of a new risks stemming from climate and across all business areas and category of benchmarks, change, natural disasters, also align banks with society’s goals comprising the low-carbon environmental degradation as expressed in the UN Sustainable benchmarks and the positive- and social issues; and Development Goals and the Paris carbon impact benchmarks.4 • fostering transparency and Climate Agreement. One of HBA’s long-termism in financial and member banks was in the founding As of mid-June 2019, the economic activity. banks, which actively participated legislative proposals pertaining to in developing these Principles. benchmarks and the incorporation On the other hand, the Other HBA member banks are in the of ESG factors in the decision- European banking industry looks process of exploring the possibility making process of institutional overregulated, due to the crisis of signing and implementing these investors and asset managers have of 2008 and therefore it’s the Principles. The Principles are open been finalized and are expected to due time to explore the balance to consultation until 31 May 2019 be published in the Official Journal between stability and financing and will be finalized in Q3 2019. of the EU in the coming weeks/ the real economy. EU’s economic months. The action plan of the success depends largely on the The European Commission European Commission builds on growth of Small and Medium sized has published, since March 2018, the policy recommendations of a Enterprises (SMEs) achieving their a comprehensive Action Plan1 on dedicated High-Level Expert Group potential. SMEs contribute more financing sustainable growth. (HLEG) on Sustainable Finance, than half of the total value added in Particularly, this Action Plan which were presented in late the non-financial business economy aims to further connect finance January 2018. This HLEG was set and provided 80% of all new jobs in with the specific needs of the EU up by the European Commission Europe in the past five years. SMEs and international economy for in December 2016. The European often face significant difficulties in the benefit of the planet and the Commission’s Action Plan has the obtaining the financing they need, society. following 3 key objectives: in order to grow and innovate. To On May 2018, the European enhance the financial supporting of Commission published the first • re-orientation of capital SMEs the decision makers should legislative proposals, in relation flows towards sustainable further work on the integration of to its Action Plan, on financing investment, aiming at regulation (risk reduction) and with sustainable growth in order to achieving sustainable and the real economy. enable the EU financial sector towards a greener economy. These proposals include:

• the development of a unified EU classification system (“taxonomy”) for green/ sustainable investment projects;2 • the integration of environmental, social and governance (“ESG”) factors in the decision-making process of institutional investors (such

1 COM (2018) 97 final. 2 COM (2018) 353 final. 3 COM (2018) 354 final. 4 COM (2018) 355 final.

July 2019 Bankieri 21

www.aab.al FRONTLINE NPL Market and credit growth in the Republic of Serbia

In the three-year period of the Strategy’s application, a great number of legal acts and by-laws were adopted and amended, the institutional capacity was improved and many measures for easier write-off and transfer of uncollectable claims were implemented.

also make an overview of current 2019 the expected GDP growth is macroeconomic developments and 3.5%. Inflation has been kept at a the main indicators of the banking low level (average level of 2.0% in sector of Serbia. 2018), the current account deficit halved, the country risk premium is significantly reduced and credit rating upgraded. Strong fiscal adjustment enabled a faster than expected fall in the public debt The aim of the Program and NPL share in GDP – to about 50%. There Resolution Action Plan for was a fixed investment growth of 2018-2020 period consists in a around 30%, led by investments of removal of obstacles identified private and government sectors, Vladimir VASIĆ in the system, which prevent and accompanied by the halved unemployment rate. The robust Secretary General timely solving of non-performing ASSOCIATION OF SERBIAN BANKS growth in dinar savings was claims and establishment of the positively assessed – savings system which will prevent the rose by close to 25% in 2018 and erbia is a good example of accumulation of NPLs and the are continuing up this year. Led the numerous measures and appearance of negative effects by demand and supply factors, activities taken to reduce the S on loan activity, endangering lending activity recorded a 10.0% level of NPLs in the last six years, y/y growth rate in February 2019 potential economic growth. In the most important thing being the (9.9% end-2018). Further growth systemic approach in resolving order to attain the fundamental of lending activity is expected that problem. Moreover, in the last goal, several crucial fields were in the coming period, a result of six years Serbia had significant identified and within these, sustainable economic growth, results, in terms of strengthening it is necessary to improve (1) improved conditions in the labor macroeconomic stability and the regulatory framework, (2) capacity market, effects of past monetary country was recognized as a leader policy easing by the NBS, low building and/or (3) application of in terms of the resolution of non- interest rates in the euro area, performing loans, whose share regulations. interbank competition and reduced fell to 5.7% in December 2018. In NPLs. this article we are going to present Serbian experience in resolving Banking Sector of Serbia NPLs in the banking sector and Macroeconomic Developments The banking sector consists of key priorities for the forthcoming in Serbia 28 banks (by end-2018) and is period in resolving state owned The year 2018 was marked by adequately capitalized and highly NPLs, as well as the measures positive economic trends, including liquid. A declining level of NPLs, the planned for real sector, in order GDP growth by 4.4%, which is the fact that there is no concentration to prevent new NPLs. We will highest increase in ten years. In of some types of assets in the

July 2019 Bankieri 23 www.aab.al banking sector, and the satisfactory attempts to resolve this complex taxation – in order to enable a degree of competition witness a issue by using individual measures, more favorable treatment, in case stability of the banking sector. At it was confirmed in practice that of claims write/off, of voluntary end-Q1 2019, the capital adequacy a permanent resolution of NPLs financial restructuring, which ratio was 23.7%, well above the requires a systemic approach and enables restructuring of debts both regulatory minimum (which as of active involvement of all relevant of companies and entrepreneurs. 30 June 2017 equals 8%). The share institutions. On 13 August 2015, During the previous period, of NPLs in total banking sector the Government adopted the NBS carried out all activities loans decreased significantly and national NPL Resolution Strategy. envisaged by its Action Plan, aimed displays an evident downward In addition, both Government and primarily at the enhancement trend, owing to the implementation National Bank of Serbia adopted of banks’ capacities to resolve of NPL Resolution Strategy, action plans, in order to fulfil NPLs. Important improvements adopted in 2015, as well as to other strategic objectives. have been implemented in regulatory activities by National certain areas, such as accounting standards and practices, as well as collateral assessment, disclosure requirements for banks, regarding collateral, biggest exposure and recognition of interest of NPLs. In August 2017 the NBS adopted the Decision on obligatory write-off of receivables that are fully impaired and transferred to the banks’ off- balance sheet. It is also important to mention the activity of NBS on NPLs’ resolution, prior to the Strategy. In 2015, NBS conducted a special diagnostic Bank of Serbia. The NPL share Activities Implemented during study about the bank assets’ equaled 5.5% at end-Q1 2019, down the Strategy’s Application quality, whose results provided a by 3.7 pp relative to Q1 2018, or by The main goal behind the Strategy basis for improving regulatory and 16.8 pp, relative to August 2015, was to: supervisory regulations (in the when the Strategy was adopted. area of IFRS) and were of great • prevent NPLs accumulation at assistance, when more practical Efforts on NPL Resolution the level that would negatively activities in the Action Plan of the NPL Strategy/2015-2018 impact lending activity and Strategy were defined. Several In the late 2008 the share of gross economic growth, and factors contributed to a significant NPLs in Serbia was 11.3% and in • improve the conditions for decrease of the level of NPLs in the 2009, as the crisis escalated, the NPLs’ market development. previous three-year period: claims’ stock of NPLs increased by over write-offs, cession or sale of 50%, by expanding their share in In the three-year period of the claims, repayment and settlement total loans by 4.4% to 15.7%. The Strategy’s application, a great and, to a lesser extent, claims’ rise of total NPLs continued in the number of legal acts and by- restructuring. years that followed; their share laws were adopted and amended, The illustration above presents reached a historic high of 21.6% in the institutional capacity was the individual importance of factors 2015, when the Strategy was being improved and many measures that led to the reduction of NPLs. developed. for easier write-off and transfer An important indicator of success The NPL ratio was the of uncollectable claims were of the Strategy in the segment of highest in Serbia in 2015 but fell implemented. A great number the NPLs market development sharply during the Strategy’s of legal acts were amended and in Serbia is also the total amount implementation to the level of 5.7%, adopted, especially in the field of sold claims, balance and off- at the end of 2018. After several of real estate value appraisal, balance, to parties outside and

24 Bankieri July 2019 www.aab.al

the operation of bankruptcy courts. Regulation of the bankruptcy of entrepreneurs), • activities aimed at the prevention of non-performing loan (development of a study on corporate indebtedness and prevention of NPLs in the real sector, the development of tools for the purpose of preventing financial distress and an outreach campaign, the improvement of legal within the banking sector, which endangering potential economic framework of the Law on amounted to EUR 1,651 million in growth. In order to attain the Deadlines for Obligation the observed three-year period. fundamental goal, several crucial Settlement in Commercial Out of this amount, 81 percent fields were identified and within Transactions, enhancement of of claims were sold to persons these, it is necessary to improve (1) the legal framework governing outside the banking sector (EUR regulatory framework, (2) capacity real estate valuation). 1,331 million). building and/or (3) application of regulations regarding: Conclusion Next Steps (NPL Program /2018- The activities implemented 2020) • resolution of non-performing during the previous period have The implementation of measures, claims of banks in bankruptcy, strengthened the system, by stipulated by the Strategy, yielded as well as claims in the name preventing the NPLs build-up, significant results. The level of and for the account of the with banks encouraged to manage NPLs decreased significantly, after state, credit risk more efficiently, the Strategy was passed. After • improvement of bankruptcy further cleaning their balance more than three years since the framework (establishment sheets, instead of postponing the Strategy was adopted, the level of the internet portal for NPLs resolution. All this resulted of NPLs decreased, in September online auctions of bankruptcy in the creation of an adequate 2018, to the lowest level since assets, improvement of the environment and room for new 2008, when this quality indicator profession of bankruptcy lending, i.e. further growth in of the bank portfolio started to be administrators through lending and economic activity in measured. trainings, improvement of the Republic of Serbia. Nevertheless, along with successful implementation of the Strategy, it is necessary to undertake activities, so as to address and solve the remaining issues and ensure sustainability of the accomplished results. The aim of the Program and NPL Resolution Action Plan for 2018- 2020 period consists in a removal of obstacles identified in the system, which prevent timely solving of non-performing claims and establishment of the system which will prevent the accumulation of NPLs and the appearance of negative effects on loan activity,

July 2019 Bankieri 25 www.aab.al BANKING SYSTEM OTP BANK Albania An ambitious bank for developing the Albanian banking market OTP Bank Albania will be a very active player in the Albanian banking market. Our bank's goal is to grow further, and to maintain a very good service quality for our customers.

Expressbank), Croatia (OTP Banka growth is satisfactory, about 4%, non- Hrvatska) (OTP Bank Romania), Serbia performing loans have fallen, and (OTP Bank Serbia, Vojvodjanska Banka) liquidity and capital adequacy is at high Slovakia (OTP Banka Slovensko), levels. All these indicators create the Ukraine (CJSC OTP Bank), Montenegro appropriate conditions for an increase (Crnogorska Komercijalna Banka), in banking activity. Russia (OAO OTP Bank) and in Slovenia and Moldova. The OTP Group's goal is As regards the OTP Bank Albania, our to be the largest bank in the Central expectations for 2019, as confirmed by and Eastern European region. the results of first quarter, are quite positive. We will be very active, by BANKIERI: Why did OTP Bank increasing lending, both for individuals choose to come to Albania, at a and businesses; we will open new time when other banking groups branches and invest in new products. are withdrawing from the Balkan The quality of our loan portfolio is region? very good. Me and the staff are very Bledar SHELLA OTP Group has begun its expansion confident that it will be a very positive CEO in 2001 and the OTP Group's goal is to year for OTP Bank Albania. OTP BANK Albania be the largest bank in the Central and Eastern European region. We could BANKIERI: How do you see the say that this group has expanded with position of OTP Albania in the BANKIERI: OTP Bank is now a a high consistency, by increasing its Albanian banking sector and in reality in the Albanian banking profitability, at the same time. OTP the financial system, regarding market. Who is OTP Bank? Group aimed at entering the Albanian banking products and services? OTP Group is an important player banking market since 2003, a move OTP Bank Albania will be a very active in the banking industry, in Hungary that was accomplished now, through player in the Albanian banking market. and in Central and Eastern Europe. the acquisition of another European Our bank's goal is to grow further, Established in 1949, the group has bank, and in a favorable position. and to maintain a very good service been developing continuously, by being The Albanian market is a developing quality for our customers. Further today a banking group which provide and sustainable market, from the development of banking products and universal financial services. macroeconomic point of view, and services is one of our key objectives. there are still rooms for growth and This is achieved by establishing a long- OTP has a dominant role in the development, both in the size of market term relationship with our customers Hungarian banking market, thus and in terms of banking products and and partners. Also, we are working being the largest bank, with over 30% services. on opening new branches in Tirana, market share. Since early 2000s, OTP to get closer to businesses and better Bank has been active in its expansion BANKIERI: As part of one of the respond to their needs. All this will in the region and has completed largest banking groups in Central be accompanied by increasing the several successful acquisitions. OTP Europe, can you briefly explain quality of service to our customers, Group has been transformed into a the business strategy to develop through digitalization of a number of leading player in the region, where banking activity in Albania? processes. We will continue to invest besides Hungary, and its entry in Expectations for the banking system in developing new products, by putting Albania, the OTP Group currently in 2019 are positive. I think there special emphasis on digitalization operates in 9 other countries, through will be a further improvement, opportunities. its subsidiaries: Bulgaria (DSK Bank, compared to 2018. The economic

26 Bankieri July 2019 www.aab.al BANKING SYSTEM Tirana Bank Consolidation and its further growth; objectives for 2019

Tirana Bank will explore and utilize the development opportunities of local market, with a dynamic but prudential approach, in terms of expanding credit portfolio for the domestic economy, with a balanced reference to individuals and business segment.

on. This is basically why, over the sector is considered a natural move, last few years, some international coupled with a clear vision, to continue banking groups have decided to sell supporting national economy’s the shares of their subsidiaries in development and increasing Albania and exit from the domestic customer service standards. The market. Bank has preserved its identity, as The withdraw of traditional banking a key domestic financial institution groups is accompanied by the entry during the last two decades, as well of new players in the market, which as the connections with traditional is an indicator of the level of interest and stable customer base. in the Albanian banking sector, due to the potential for a higher penetration BANKIERI: What will be the to customers with banking services distinctive feature and what is the and products in line with the trend difference, Tirana Bank will bring Dritan MUSTAFA of activity in the developed markets. into the Albanian banking market? CEO Also, it is deemed that domestic, The local banking sector has stable TIRANA BANK development features. Banks continue to make careful steps towards optimizing their presence BANKIERI: Tirana Bank has new and reshaping the activity, in line shareholders, already. Why such Our strategy consists in increasing with trends in the global financial a move towards banking, in a the dynamics of bank activity, with industry, chiefly towards a reduced time of mergers, acquisitions number of branches and gradual the main objective to increase the and withdrawals from certain growth of alternative channels. markets, by international banking lending rate and portfolio, along Tirana Bank applies a universal groups? with specific offers designed for bank business model, thus serving The most important development specific segments of clientele. individual customers, as well as during 2018-2019 is the trend of business and institutional clients. banking system consolidation and The bank has a sufficient presence, changes in ownership of some in terms of branch network and banks, and consequently, the geographic coverage. Despite the reduction of the number of operators or regional economic groups, are process of shareholder structure’s in the market. Such transformation playing an increasingly important change, as finalized in February 2019, process has been inevitable and role in the structure and economic the bank has operated normally, completely in tandem with trends in development of respective countries, pursuant to its strategic objectives global financial industry. Following aiming at pursuing investment in in terms of maintaining financial the last economic crisis, mainly different sectors and industries. stability, enhancing customer during the current decade, many Balfin Group, which owns the relationships and clientele base, banking groups expressed the need majority stake in Tirana Bank, has reconstructing financial assets’ for strategic changes, referring to a solid and positive experience, in portfolio, through a sound lending their business model, reshaping terms of expanding and diversifying activity. the geographic presence, changes its investments in Albania, and in Also, the bank continues to maintain in specific business lines, and so the region. Entering into the banking a strong capital and liquidity

July 2019 Bankieri 27 www.aab.al position, by being one of the safest BANKIERI: What do you think financial institutions in the market. about the major challenges Tirana BANKIERI: What is Tirana Bank's This is an opportunity to turn into Bank will be facing, over the next strategic objective in a more a benchmark for supporting the few years, within the Albanian consolidated domestic banking needs of individuals or businesses, banking sector? market? by considering synergies with the The trend of further consolidation We aim and deem that Tirana Bank broader clients and associates’ in the banking sector will continue, will continue to be a systemically network. Our strategy consists in throughout mid-term, to reach a significant bank and a long-term and increasing the dynamics of bank more reasonable number of banks, stable partner for its customers. activity, with the main objective given the relatively small size of Tirana Bank will explore and utilize to increase the lending rate and the Albanian market. This poses the development opportunities of portfolio, along with specific offers a strategic challenge, which will local market, with a dynamic but designed for specific segments of also determine the possibilities and prudential approach, in terms of clientele. capacities of the organic growth expanding credit portfolio for the Our investments in the field of the system in general and of domestic economy, with a balanced of information technology and individual banks, in particular. The reference to individuals and alternative sales channels are a fast-changing developments in the business segment. Also, we will clear commitment to innovation, field of information technology will continue to invest in modernization infrastructure and process pose particular challenges, so this of our operational infrastructure, in modernization, as well as to issue requires constant attention line with best banking standards and improving the quality of customer from all banking operators to prevent practices. service, with the aim to optimize the operational risks of a technological resources of the bank. nature.

28 Bankieri July 2019 www.aab.al EXPERTS' FORUM Three effective strategies to fight informal economy

Because it has a negative impact on many aspects of society, reducing the size of the informal economy can improve the lives of people around the world and bring a variety of benefits to workers, businesses, and governments.

economy could bring a wide array benefits, there may be no credible of benefits, including less poverty, deterrent because of prevailing more job security, and greater social and other non-economic access to social benefits, as well factors. as additional tax revenue to boost Because the informal the development of infrastructure, economy has a negative impact education, and healthcare. As the on many aspects of a country study shows, increasing digital and its society, dismantling it can payments by 10 percent per year improve citizens’ lives and create for five consecutive years could benefits for governments and the lift global GDP by up to US$ 1.5 businesses that operate under trillion, by 2021. their jurisdiction. Consumers The factors that drive and individuals, who use goods individuals and businesses into and services from the informal Vladimir DJORDJEVIC the informal economy differ from economy, are also at greater risk General Manager country to country, and their because of the lack of adherence SEE, VISA impact is not the same. When to quality and safety standards. economies go through a crisis, or Businesses also face an array of economic stagnation, individuals negative impacts, including unfair and businesses attempt to make competition. For governments, up for loss of income from the the most obvious effect is lower ore than 23 percent of official economy, by entering the tax revenue. Off-the-books the world's economy informal economy. For instance, employment reduces both Moperates out of sight of in the years after the global corporate employee contributions governments, leaving more than financial and economic crisis, and personal income taxes. US$ 10.7 trillion of economic official global unemployment rose Underreporting sales reduces activity unreported annually. from 6.8 percent in 2008 to 8.5 the amount of value-added or These are the findings of a first- percent in 2013, accompanied by sales tax, duties, and excise tax— of-its-kind study, commissioned a parallel increase in the informal meaning that governments have by Visa and conducted by economy. While this rise in global less funds to invest in programs, A.T.Kearney. Indeed, the informal average unemployment might not including infrastructure, health, economy is found in many facets sound like a major increase, many education, and security, which of our everyday lives. Although countries experienced significant benefit all citizens. its size and visibility differ, every unemployment. Countries try to curtail the country and every industry has Even some well-intentioned informal economy and encourage some level of informal activities, businesses operate in the informal the use of digital payments in or off-the books transactions, economy, because of a tangle of a variety of ways. Because the and they all have one thing in bureaucratic and administrative informal economy relies on the common: most of the transactions red tape. But even when the use of cash and thrives when are made with cash. Moving these risks of operating in the informal transactions cannot be detected transactions into the formal economy outweigh the perceived by authorities, it faces major

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30 Bankieri July 2019 www.aab.al obstacles in the digital world. open-loop contactless, with more aspects of society, reducing the Digital payments strategies are than 1 billion journeys made by size of the informal economy can now playing a greater role than in contactless payment, as of July improve the lives of people around the past, when an enforcement – 2017. the world and bring a variety of based approach predominated. Despite being largely invisible, benefits to workers, businesses, Discouraging the use of cash the informal economy impairs and governments. involves reducing the perceived society in a variety of ways Looking ahead, the role of advantages of paying with cash, that go far beyond the financial digital payments is bound to grow— as well as changing habits and making a positive impact not from other traditions that perpetuate coercion but from convenience. its use. There are ways to However, no generic set of policies reduce the amount of cash in can reduce the size of an informal circulation, including higher fees The role of digital payments is economy, and no universal recipe for withdrawals from an ATM, or bound to grow—making a positive exists that can create an effective a bank branch, daily or weekly digital payments policy. The ideal impact not from coercion but cash withdrawal limits, and easy approach varies from country to access to free or low-cost cash from convenience. However, no country. deposits. generic set of policies can reduce All stakeholders – public Broadening and modernizing the size of an informal economy, authorities, payment service the infrastructure for accepting and no universal recipe exists providers, financial institutions, cards and contactless payments that can create an effective mobile operators, merchants, is another approach to increasing and businesses – have different digital payments policy. The ideal the use of digital payments. roles to play in their market and Consumers’ choice of whether approach varies from country to in advancing digital payments. to use cash or a digital payment country. Public authorities have an is influenced by the payment essential and multifaceted role. In infrastructure and merchants’ addition to providing a regulatory willingness to accept digital and legal framework, they can act payments. implications of GDP and tax as the glue between stakeholders A third approach is to encourage revenues—from unfavorable – moderating a dialogue about the use of digital payments. Most working conditions and a lack the national road map, setting measures fall into this category. of safety standards to unfair priorities, spearheading As the largest payer and payee in competition and sustained levels collective actions, and ensuring most countries, the government of poverty and inequality. Because transparency and accountability has a significant opportunity to it has a negative impact on many for results. shape the payment behaviors of companies and individuals— for example, by enabling digital transactions for all public matters or providing infrastructure for digital payments at its offices. Incentives for using card payments have proven to be an effective way to increase the use of digital payments, especially when linked to lower taxes. Smart value cards have revolutionized the transportation sector by sustainably converting low-value cash payments into digital transactions. Transport for London has seen success with

July 2019 Bankieri 31 www.aab.al EXPERTS' FORUM BASEL III and its impact on the banking sector

What it is more alike to occur is that both, the regulators and also the financial market participants, are willing to accept slightly slower economic growth if it means greater stability and a decreased likelihood of a repeat of the events of 2008-2009.

continuance of the focus that was medium run, but it is expected given on the asset side by Basel that, in combination with other II. The suggested measures from measures, to increase stability in the Basel III aim to introduce new the financial system, which in turn capital and liquidity standards ensures steady levels of economic to strengthen the regulation, growth in the medium and long supervision, and risk management run perspective. of the whole of the banking and As it has happened for more the finance sector. Basel III will than a decade, the Bank of Albania result in a safer financial system as the Regulator of the banking while restraining future economic sector in the country has applied growth to a small degree. the (especially after) Basel II The credit crisis, that followed requirements and adopted as per after 2008, the increase of bad market’s local characteristics Rajmond PAVACI debts, global recession, the and needs. This is valid also with Manager, Risk Management Division the approved new Regulation no. ALPHA BANK ΑLBANIA 27/2019 “On the Liquidity Coverage Ratio” as of 28.03.2019 and which enters into force in March 2020. Problems with the original This will further complete the asel III signs the entrance accord became evident during necessary framework after the of the banking system in a the subprime crisis in 2007-2009. Regulation no. 48/2013, “On Bnew era, where everybody Members of the Basel Committee Capital Adequacy Ratio”, which involved at all levels and in all on Banking Supervision agreed entered into force in May 2018, roles, has started to comprehend on Basel III in November 2010. especially after being completed that banking is more complex than with the Guideline no. 26/2017 Regulations were initially ever and that problems should “On the Internal Capital Adequacy be identified before they become introduced from 2013 until 2015, Assessment Process – ICAAP”. serious. but there have been several The Capital (under the Basel III Basel III is an agreed set of extensions until final expected prerequisites) serves as a buffer international banking regulations, implementation in January 2022. to absorb unexpected losses developed by the “Bank for and to fund ongoing activities International Settlements” of banks, which on the other to promote stability in the hand, are required by regulators international financial system. pressure on banks’ capital levels to hold minimum amounts of The Basel III regulations are and the need for new rules and capital and banks must hold designed to reduce damage to the regulations, had all combined the more capital against their assets, economy by banks that take on prerequisites of bank management thereby decreasing the size of excess risk. It is an extension of at more challenging than ever. their balance sheets and their the existing Basel II Framework, Upon implementation, Basel III ability to leverage themselves. which is aimed to get stronger, it is expected to give its impact The Basel III regulations contain by being focused on the liabilities on the cutting of the profitability several important changes for side, i.e. capital and liquidity, in of the banks in the short and banks' capital structures. The

32 Bankieri July 2019 www.aab.al minimum amount of equity, as basis. The observed weaknesses bank capital and shrinking a percentage of assets, it is in the risk management practices credit availability. The Basel III suggested to increase and above oriented the Basel Committee on framework as response to this that, it is also an additional buffer Banking Supervision (BCBS) to situation, introduces a simple, required, bringing the total equity include a significant strengthening transparent, non - risk based requirement to higher percentages of its framework for Counterparty leverage ratio to act as a credible (the previous Basel II minimum Credit Risk (CCR) for securities supplementary measure to the is now increased from 2% to financing transactions (SFTs) and risk-based capital requirements 4.5% plus a buffer of 2.5%, which both over-the-counter (OTC) and for the banking sector. In other means that a 7% level is set as the centrally-cleared derivatives in words, the capital leverage ratio minimum for equity requirement) response to the crisis. The CCR is intended to: a. restrict the and it is likely that many banks itself is considered as a complex build-up of leverage of banks to will strive to maintain a somewhat risk to assess, because due to its avoid destabilizing deleveraging higher figure to use as a cushion. hybrid nature between credit and processes that can damage Afterwards, if financial institutions market risk it depends on both the system and the economy; are perceived as safer, the cost of changes in the creditworthiness of and b. reinforce the risk-based capital for banks would actually the counterparty and movements requirements with a simple, non- decrease and more stable banks in underlying market risk factors. risk based “backstop” measure. can issue debt at a lower cost. Basel III introduces capital While regulations may help reduce It was agreed upon by the requirements to cover Credit the possibility of future financial members of the Basel Committee Value Adjustment (CVA) risk and crises, it may also restrain future on Banking Supervision even higher capital requirements for economic growth. This is because before April 2013, when it was securitization products. bank lending and the provision thoroughly revised and the The revised new capital buffers of credit are among the primary extended requirements for require banks to hold more capital drivers of economic activity in the its implementation started and higher quality of capital modern economy. Therefore, any after March 2018, and which than under Basel II rules. The regulations designed to restrain is expected to be fully in place new liquidity ratios ensure that the provision of credit are likely to after January 2022. The Basel III adequate funding is maintained hinder economic growth, at least requirements were in response in case there are other severe to some degree. Nevertheless, to the deficiencies in financial crises for the banking system. what it is more alike to occur is that regulation that is revealed by Banks were given plenty of time to both, the regulators and also the the 2000’s financial crisis and implement these changes, in order financial market participants, are intend to strengthen bank capital to prevent a sudden lending freeze willing to accept slightly slower requirements by increasing bank as banks scramble to improve economic growth if it means liquidity and decreasing bank their balance sheets. According to greater stability and a decreased leverage. Basel Committee, an underlying likelihood of a repeat of the events In terms of Liquidity, the Basel cause of the financial crisis was of 2008-2009. III introduces two required liquidity the build-up of excessive on - and ratios: a. Liquidity Coverage off - balance sheet leverage for References: Ratio (LCR), which ensures that systemic banks, which apparently (www.bis.org – Bank for Interna- sufficient levels of high-quality maintain strong risk-based tional Settlements) liquid assets are available for capital ratios. Under Basel II “Basel III: A global regulatory one-month survival in a severe rules, at the height of the global framework for more resilient stress scenario; and b. Net Stable crisis, financial markets forced banks and banking systems”, Funding Ratio (NSFR), which the systemic banks to reduce “Basel III: International promotes resilience over long- their leverage in a manner that Framework for liquidity risk term time horizons by creating amplified downward pressures measurement, standards and more incentives for financial on asset prices, meaning on loans monitoring”, institutions to fund their activities and securities. This deleveraging “Basel III: The Liquidity Coverage with more stable sources of process exacerbated the feedback Ratio and liquidity risk monitoring funding on an ongoing structural loop between losses, falling tools”.

July 2019 Bankieri 33 www.aab.al SOCIAL DEVELOPMENT GOALS

OBJECTIVE 4 The Bank supported the publication of the book: "Trip to Three Times" by the renowned Prof. Adrian Civici. • On June 5th, 2019, Alpha Bank OBJECTIVE 5 Albania was part of a humanitarian On May 17th, the bank supported activity at Tirana Social Center, in the annual gala’ event, organized cooperation with Albanian Red Cross by activists of LGBT community in volunteers. Tirana. • The bank supported the Project: "Let's learn and educate while having OBJECTIVE 11, 15 fun", at "Pashko Vasa" 9-year school, ABI Bank, following the support in Shkodra. of initiatives that promote • The bank attendesd the 10th volunteering and nature protection, Edition of the Albanian Study and supported the initiative of "OPTIMA" Employment Fair, April 30th - May Foundation for cleaning the 2nd. Darëzeza beach and forest, in Fier. • Alpha Bank Albania joined World Vision Albania in the project: "Hello ART, SPORT, CULTURE (Tungjatjeta)", by supporting 36 The US Investment Bank supported: disabled children in the remote areas • For the second consecutive year, of Librazhd. the concert tour: "Cinema Sounds" • On April 25th, the bank was part of RTSH Symphonic Orchestra. of the initiative launched by Junior • "Rally Albania", 2019. Achievement of Albania, "Leader for • Puppet Theater International One Day". Festival, May 25th - June 1st. • Musical: "ANNIE", June 8th, at Arturbina. • "Marie Kraja" International Opera Vocal Festival, on April 19-20th, at Cultural Center of Orthodox Cathedral in Tirana. • as a general sponsor of the concert of Olen Çezari (musician), OBJECTIVE 3 with his "International Clandestine The American Bank of Investments Orchestra" group, April 23-24th, at supported: the Palace of Congresses. • On April 21st: Trail Running • The "Ritfolk" Concert, as a return Albania, in Dajti mountain. to the beautiful music of the 90s. • All teams of "Studenti" Sport • “Rudina podcast”. With Omer Club. Kalesh, the Albanian, and so • ABI Bank donated a vehicle, which Turkish and French painter, opens will be in the service of "Staying the cycle on YouTube” "Wonderful Together" Social Community Albanians", a collaboration of the Center. It also donated home American Bank of Investments and appliances to the "House of Hope" Rudina Xhunga with Dritare.net. in Shën Vlash, Durrës. • “From the Beginning," in Vizion +, • On May 24th, in cooperation one of the most familiar TV formats, with the Albanian Red Cross, it • "Give me the hand," another organized the voluntary "Blood program that transmits optimism Donation" initiative. and hope.

34 Bankieri July 2019 www.aab.al

OBJECTIVE 17 Credins Bank became part of The bank sponsored the three activities: organization of prom, an old • "Work and Study" Fair, April 30th tradition for the city of Vlora and - May 2nd. for Vlora Regional Education • Investing in hiring young Directorate. graduates and newly graduated students, in Career Day 2019, April 18th, at Faculty of Economics, Tirana University. • The 6th Career Fair, on April 24th, at “Epoka” University. Credins Bank supported successfully this year's "Green OBJECTIVE 3 Ideas" competition, in cooperation Credins donated incubators to the with Partners Albania for Change hospital "Koço Gliozheni". and Development.

Credins Bank supported the Credins Bank, supported the Red Cross. On May 28th, at the Students’ Forum on: "Innovation premises of Tirana's Social in the Albanian Financial Center, an event was held with 50 System", organized by students orphanes living in the community. of Department of Economics & The bank’s staff celebrated Finance of the European University Bajram at the House of Elderies of Tirana (UET). in Tirana, by having lunch with all residents of the house. ART SPORT AND CULTURE Credins Bank supported: OBJECTIVE 9 • Second edition of "Dajti Trail The bank was honored with the Running", April 21st, certificate of gratitude from Mr. • Concert of Soni Malaj & Majk, Xhelal Mziu, Mayor of Kamza town, organized by Tirana Municipality, for iths special contribution and at the Lake Tirana Amphitheater, activity at the benefit of Kamza • Tirana Municipality and the town. Agency for Parks and Recreation, in promoting city and art in Tirana, OBJECTIVE 11 • "Albania Climbing Festival", a Credins Bank supported Skrapar climbing discipline event in its 5th Municipality in organizing the year, organized by Rock Tirana event on opening the 2019 touristic Climbing Gym, May 3-5th, in season. Bovillë, Brar, • "Albanian Open" event, Credins supported Agribusiness which coincided with the 20th and promoted the "Moving Bank", anniversary of the Albanian and organized regional meetings Aeronautics, May 8 -11th, in Vlora, with rural farmers, throughout with the participation of more than Albania. 70 pilots from all over the world, • "Romana Evening" Concert, On June 1st, the children of Credins organized at the Concert Hall of Bank’s staff donated books for the Faculty of Arts, in honor of their peers at Children's Houses Tonin Arapi, in the city of Shkodra, Durrës and • Second Taekwondo International Korça. Championship,

July 2019 Bankieri 35 www.aab.al

• The concert organized by Tirana Municipality, on June 20th, at Lake Fibank & Booking.com in a unique Tirana Amphitheater. partnership. If you reserve it at http://travel.fibank.al, the customer will be reimbursed up to 7% of the amount.

On April 19-21st, Fibank Albania sponsored "Vratsa Spring" folk festival in Vrasta, Bulgaria. The OBJECTIVE 3 participation was made possible Intesa Sanpaolo Bank Albania thanks to the contribution that employees participated, for Fibank Albania offered in favor of the 10th consecutive year, in “Skampa” cultural association. the voluntary blood donation initiative. In order to raise Fibank welcomes students to awareness on Volunteer Blood develop professional and teaching Donors, the bank, delivered a internships, not only in Tirana, but special communication with also in other cities. The internship customers and the general public, program is based on several through ATM screens and official years of cooperation with the bank pages on social media. Ministry of Education, Sports and Youth. Based on the performance OBJECTIVE 4 valuation of interns, Fibank The bank supported AIESEC selects the best for recruiting in Albania, in the organization them for vacancies at the bank. of SpringCo2019 (Student Conference), April 2nd. On May 9th, the "Flower Festival" The World Book and Copyright was organized at Rapsodia Day, is a symbolic date for world Restaurant in Lezha, supported by literature. Fibank. The Bank assisted te organization Fibank presented its new branch, of the “Our Lady of Good Council” which is the fourth in Tirana Foundation Event, at university and 14th out of Fibank Albania campus, for its 26th anniversary, network. April 24th, 2019.

On June 6th, it organized the The Bank supported, for the "Work Relations" training for second consecutive year, "Head of Departments and Branch "Globalization in IN.E.AR up to Managers" mid management level, its limits" Student Conference, from "EPPC Albania & Kosovo" April 25th. The winner of the training company. First Prize for Best Work "Smart Planning Strategy" started a paid "Fast Holiday Financing", a internship program at Intesa 0% interest bank product, in Sanpaolo Bank Albania. cooperation with VAS Tour Operator, or its subcontractor Two winners of Money Week Essay agencies. Competition: "Denominations,

36 Bankieri July 2019 www.aab.al examples from History and the customers and the public, Albanian Case" were awarded through ATM screens, footers on with a paid internship program at e-mail exchange, website site, Intesa Sanpaolo Bank Albania. official bank pages on social media, to raise awareness on OBJECTIVE 5 refugee issues. The International Girls' Day in ICT - aims to encourage and ARTS AND CULTURE empower girls and young women On June 11-20th, Intesa Sanpaolo who consider studies and having Bank Albania supported: "E DUA a career in ICT, by enabling THEATRIN", a students’ project, technology companies and girls to where students from 4 different benefit from greater participation faculties (Economics, Medicine of of women in the ICT sector, April "Marin Barleti” University & UT 25th. Faculty of History and Philology) put on stage exhibitions which OBJECTIVE 8 they directed with the help of new The Bank was part of the 6th art directors. Career Fair, organized by “Epoka” University, April 24th. World Health and Safety-at-Work Day, focusing on promoting health security and integrity, April 28th. The bank was part of "Work Fair 2019 – Business Day at UET", on OBJECTIVE 3 May 16th, and at UMT on May 29th. The bank supported Kruja Regional Hospital with an Echo OBJECTIVE 9 machine. Another equally The World Creativity and important project in supporting Innovation Day (#WCID) is healthcare was the provision of positioned 6 days after Leonardo some laboratory equipment for da Vinci's birthday and 1 day Lezha Hospital. before the International Mother's The Bank supported "You Are Day Day, April 21st, 2019. a Sunflower" Foundation, in organizing a party on June 1st, OBJECTIVE 15 where the bank staff donated International Earth Day, April gifts to the children. 22nd. Earth and its ecosystems are our home. OBJECTIVE 4 The Bank continued supporting, OBJECTIVE 13 for the fourth consecutive year, The Bank undertook a weekly "The City of Readers" project, awareness initiative for all its which aims to create new literary colleagues and clients, through spaces for educating young postcards focusing on conveying generations. messages about the impact that air pollution has on the OBJECTIVE 9 environment today, June 5th. Raiffeisen Bank supported, for the fourth year, the InfoCom OBJECTIVE 10 & 16 conference, which this year On June 20th, the bank delivered marked its 10th Edition, InfoCom a special communication with X - the Anniversary, April 24th.

July 2019 Bankieri 37 www.aab.al

OBJECTIVE 11 Raiffeisen Bank has given to Tirana On Autism Awareness Day, Municipality, by planting 500 trees Raiffeisen Bank supported the in Tirana. Albanian Children Foundation in publishing an important ART AND CULTURE therapeutic manual for parents, in Raiffeisen Bank supported: DVD and hard copy format. • Second edition of "Balkan Jazz showcase" festival, April 29-30th. In the frame of the project of • The third Edition of "Swing cooperation with Tirana Education Marathon", a 12-hour Jazz of Regional Directorate, the bank 50s-60s music program, from provided the relax room equipment Tirana to Shkodra, organized by for five 9-year schools in the Hemingway Fan Club Albania. capital, which will assist children • Second edition of Color Day with different abilities that are Festival. integrated in these schools.

On April 2nd, the second edition of Vienna Ball was organized at the Palace of Congresses, with the support of Raiffeisen Bank. A part of the proceeds collected from this OBJECTIVE 8 event went to "You're a Sunflower" On April 24th, Union Bank attended Foundation. Career Day, organized by the Faculty of Economics of Tirana The bank supported the University. organization of "South Outdoor Union Bank and "Luarasi" Festival" in Himara. University College officially Raiffeisen supported the "Act for announced, on June 14th, the Society" Center in the "Power Up cooperation between them for the Community 2" project. delivery of internship programs for students of the university. Raiffeisen Bank supported Tirana The agreement between the two Municipality in the project to equip institutions was signed by Mr. "Emil Le Grand" square with two Gazmend Kadriu, CEO of Union new sports fields. Bank and Prof.Dr. Et'hem Ruka, Rector of “Luarasi” University The bank supported Gymnastrade, College. in "The Future and the Hope" socio- cultural activity.

OBJECTIVE 13 In cooperation with Free Thought Forum through the Albanian Volunteer Corps, several actions were undertaken to clean coastal areas from debris. The areas were: Spille Beach, Tale Beach in Lezha, Zvërnec Beach, the Vilun Park, and recently the Llogara National Park. More green spaces in the capital, thanks to the support that

38 Bankieri July 2019 The Albanian Association of Banks (AAB) celebrates its 20th anniversary

Established 20 years ago (on March Banking Federation, national and them for their participation in this 1999), AAB promotes the latest international financial institutions, event. Following, Mrs.Anila Denaj, banking standards of its member regional bank associations, Minister of Finance and Economy, banks, the development, stability representatives of non-profit Ms. Maryam Salim, Permanent and efficiency of the Albanian organizations, universities and Representative of the World Bank banking sector in general, and in the media. As well, the present in Albania and Mr. Istvan Lengyel, partnership with public and private Minister of Finance and sector actors, it contributes to Economy, Ms. Anila Denaj, improving business environment and the Minister of State and discuss key industry issues, as for the Protection of well as defining common strategies Entrepreneurs, Mr.Eduart for the Albanian financial sector. Shalsi also attended the On May 13, the Albanian event. Representatives of

Secretary General, Banking Association for Central and Eastern Europe (BACEE), delivered their welcoming speeches. In addition, Mr. Lengyel awarded AAB with a Certificate on behalf of BACEE for its successful co-operation.

Association of Banks organized foreign organizations and the 20th anniversary celebration partners, with whom AAB ceremony of its establishment. The has established fruitful ceremony was attended by honored cooperation over the personalities with valuable years, also honored this contribution to the banking sector, anniversary ceremony. representatives from various Mr. Silvio Pedrazzi, ministries, Bank of Albania, World Chairman of AAB and CEO of Intesa In her speech, Minister Denaj Bank, UNDP, EBRD, European Sanpaolo Bank Albania welcomed praised the valuable contribution Investment Bank, European the participants and thanked of the banking system in Albania

July 2019 Bankieri 39 to the economic growth of the country, being an important means for promoting savings of Albanians, but also for the growth of the domestic economy through lending. The Minister emphasized

the necessity of returning credit to the expected level, as "credit enhancement is a necessity not only for the country's economic

and sustainable development, but also as a key activity for banks themselves." The evening continued under a festive atmosphere with music, congratulations and greetings among the guests.

40 Bankieri Korrik 2019 The Albanian Association of Banks organizes the conference on “Banks for Sustainable Development”

On 14 May, 2019, the AAB organized the conference on “Banks for Sustainable Development”. This conference was attended by representatives from member banks. In addition, representatives from the Ministry of Finance and Economy, Bank of Albania, World Bank, UNEP FI, European Bank for Reconstruction and Development (EBRD), European Investment Bank, European Banking Federation, regional bank associations, representatives of non-profit organizations, academic circles and the media attended the conference. The conference proceedings were opened by Mr. Silvio Pedrazzi, Chairman of AAB and CEO of Intesa Sanpaolo Bank Albania. Also, in the opening session of the conference participants were welcomed by the Governor of the Bank of Albania, Gent Sejko. The Governor of the Bank of Albania, Gent Sejko, during his speech, while highlighting, on the one hand, the progress made insofar, pointed out that the banking sector’s development – and of the financial system in general – has not been a linear: it has constantly faced challenges of different forms and types. These challenges have required prudence as well as active, intelligent and courageous decision-making. He said that is confident that the combined experience may and will help in future decisions.

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42 Bankieri July 2019 The conference was organized in two panels. The first panel was moderated by Mr. Seyhan Pencabligil, CEO and Board Member, Banka Kombetare Tregtare, and focused on the role and responsibilities for a sustainable future. Mrs. Puleng Tumelo Ndjwili-Potele, Banking Project Coordinator, UNEP FI introduced the “Principles for Responsible Banking: A vehicle for driving lending that contributes to sustainable development”. Mr. Dejan Vasiljev, principal economist, EBRD, focused on sustainable finance and growth.

Mr. Sebastien de Brouwer, Chief Policy Officer, European Banking Federation, EBF, spoke on the role of banks in sustainable finance and the European perspective. Mr. Alessandro Bragonzi, EIB representative for Albania, Kosovo and Northern Macedonia, brought the experience of how the EIB group finances a sustainable future. Banks in the challenging world of financial intermediation was introduced by Mr. Milan Mirjanic, Associate Partner of McKinsey.

Participants in the second panel of the conference addressed the banking challenges in the region under the moderation of Mr. Sebastien de Brouwer, Chief Policy Officer, European Banking Federation, EBF. More concretely, Mr. Pierfrancesco Gaggi, Head of International Relationship, Italian Association of Banks, ABI, presented the development of the banking sector for strengthening the recovery. Mr. Vladimir Vasic, Secretary General of the Association of Serbian Banks, brought Serbia’s experience on the NPL market and increased lending, and Mrs. Charikleia Apalagaki, Secretary General of the Hellenic Bank Association, presented the view on governance and the balance between effectiveness and security in Greece. The consolidation of the Albanian banking sector was introduced by Mr. Silvio Pedrazzi, Chairman of AAB and CEO of Intesa Sanpaolo Bank Albania, who closed the proceedings of this conference.

July 2019 Bankieri 43 www.aab.al AAB ACTIVITIES Meeting of AAB Chairman with media representatives On Wednesday, April 24th, at the invitation of Mr. Silvio Pedrazzi, AAB Chairman, and in presence of Mr. Spiro Brumbulli, AAB Secretary General, at the premises of the AAB was held a meeting with media representatives, who cover economic news. The meeting took place in the framework of sustainable, fruitful relationship and coordination with media, aiming for better information. During his speech, Mr. Pedrazzi noted that AAB is committed to clarifying some of the issues, recently discussed in the media, about the activity conducted by banks in foreign currencies and money management in the banking system. Media representatives expressed their interest in issues related to the transportation of monetary values, cash in economy and informality, and Mr. Pedrazzi was open to any questions raised by them. The meeting was evaluated as an effective communication tool.

Meeting of Governor Sejko with banking sector to discuss on: “The role of the banking industry in the future development of Albania” On May 29th, at the Bank of Albania premises was organized a meeting on: “The role of the banking industry in the future development of Albania”. The meeting, organized as an initiative and chaired by Mr. Gent Sejko, Bank of Albania’s Governor, was attended by senior officials from the Bank of Albania, commercial banks’ executives (CEOs and deputies), and representatives from the International Monetary Fund and World Bank Group.

The annual SWIFT User Group Meeting (“UGM”) On May 9th, was organized the annual meeting of UGM, which consisted of two parts and was attended by member banks’ representatives, such as: CISO – Chief Information Security Officers; IT director/managers; SWIFT main contacts and Bank of Albania representatives. The developments on the SWIFT platform and costumer security and compliance programs update were on the focus.

Workshop on Open Banking & PSD2 On June 12th, 2019, the AAB and the Facilization, an IT services and software business focused in providing full-fledged services in the Banking and Financial Services vertical, co – organized a workshop on Open Banking & PSD2 (the revised Payment Services Directive). In view of the PSD2 Directive of the EU, the workshop aimed at building understanding on the new banking environment that Open Banking revolution will create. Representatives from the commercial banks, Facilization and RedHat companies attended the workshop.

Financial Education AAB signed a collaboration agreement with Finance in Motion GmbH for co-sponsoring the printing of an educational brochure on agriculture loans and sharing the brochure to a group of stakeholders in Albania. This educational brochure addresses the basic principles and risks associated with agriculture lending. Thank to members banks the material was adapted to the country specifics. The brochure will be available into Albanian and English language.

44 Bankieri July 2019 www.aab.al TRAININGS AAB organizes trainings April - June 2019

Training on Agile Business Transformation organized on 1- 2 April, AAB in collaboration with AIEx.

Training on Retail Banking and new distributions channels and e-banking organized on May 6-8.

Training on Leadership teams organized on May 20 – 21, in collaboration with AIEx – Austrian Institute of Excellence and headed by Larissa Winter, MBA.

Points of You™, training methodology On May 21st, the AAB in collaboration with Austrian Institute of Excellence kindly organized a 2-hour info session regarding the newest training methodology that the institute offers to facilitate in Albania, Points of You™. This presentation was led by our Master trainer, Dr. Larissa Winter.

Workshop on International Trade Compliance organized by ICC Albania on June 18th, and supported by AAB.

Training on Understanding and Auditing Cybersecurity organized on June 20-21, in collaboration with AIIA.

Workshop on “Basics of International Documentary Trade Finance Banking for Back Office” on June 25 – 26, AAB organized in collaboration with ICC Albania and strongly supported by EBRD a general workshop arranged for local banks.

Training on Technical Security and Running the Track Tool. On June 9th and June 20th, AAB organized the participation of more than 25 bank security officers of members banks to conduct the training on “Technical Security and Vehicle driving at the airway” organized by Tirana International Airport.

AAB continued the collaboration with Austrian Institute of Excellence (AIEx) by offering more trainings in Albanian language in different regions of Albania.

Sales capacities and sales management - Organized on 9-10 April in Korca and on June 25-26, in Gjirokastra.

Motivating and leading a successful team - Organized on April 17-18, in Fier, on May 8-9, in Lezha and on May 29-30, in Korça.

July 2019 Bankieri 45 ......