Annual Supervision Report 2015 Bank of Albania A N N U A L 2015 SUPERVISION REPORT Bank of Albania 1 2015 Annual Supervision Report Data from this publication may be used, provided the source is acknowledged. Published by: Bank of Albania, Sheshi “Skënderbej”, Nr.1, Tirana, Albania Tel.: + 355 4 2419301/2/3; + 355 4 2419401/2/3 Fax: + 355 4 2419408 E-mail: [email protected] www.bankofalbania.org Printed in: 270 copies Printed by: Gent Grafik sh.p.k. 2 Bank of Albania Annual Supervision Report 2015 CONTENTS 1 THE FUNCTION OF SUPERVISION 7 2 KEY ACTIVITIES OF SUPERVISION IN 2015 9 2.1 Assessment of the confidentiality regime of the Bank of Albania 9 2.2 Platform for addressing non-performing loans 9 2.3 Plan of measures for the reduction of non-performing loans in the banking system 10 2.4 Package of measures to support lending to economy 10 2.5 Law on savings and loan associations 11 2.6 Recovery plans for systemic banks 11 2.7 Implementation of Basel II 11 2.8 Implementation of the Supervision Policy 12 2.9 Implementation of risks assessment manual 12 3 PRIORITIES FOR 2016 13 3.1 Regulatory Framework Development 13 3.2 Recovery and resolution of banks 14 3.3 Review of legal, regulatory and methodical framework for the supervision of banks’ governance 14 3.4 Consolidation of internal supervision processes 15 4 REGULATORY FRAMEWORK AND LICENSING 16 4.1 Regulatory framework 16 4.2 Licensing 20 5 PERFORMANCE AND RISK ANALYSIS IN THE BANKING SYSTEM AND NON-BANK FINANCIAL INSTITUTIONS 24 5.1 Albanian banking system highlights 24 5.2 Equity ownership structure by country of origin 25 5.3 Banking system structure 25 5.4 Management of banking activity risks 28 5.5 Non-bank financial institutions and savings and loan associations 44 5.6 On-site examinations 49 5.7 Credit Registry 53 ANNEXES 55 Annex 1 Supervision Department Structure 55 Annex 2 Each bank’s specific share in the banking system 56 Annex 3 Assets and liabilities 58 Annex 4 Core financial indicators 59 Annex 5 Banks’ shareholders- 2015 60 Annex 6 Data on the shareholders/partners of the non-bank financial institutions 61 Annex 7 Bank branches and agencies in Albania, by prefecture 62 Annex 8 E-banking products approved by the bank of albania 62 Annex 9 E-banking products/services, by commercial bank, as at end of 2015 62 Annex 11 Banking services Statistics as at 2015 63 Annex 12 Activitivities of the non-bank financial institutions 64 Annex 13 Banks network as at end of 2015 65 Annex 14 List of banking supervision regulations in force as at December 2015 66 Annex 15 Banks and branches of foreign banks licensed by the Bank of Albania (31.12.2015). 69 Annex 16. Non-bank financial institutions licenced by the Bank of Albania (31.12.2015) 74 Annex 17. Unions of savings and loan associations licenced by the Bank of Albania (31.12.2015) 82 Annex 18. Savings and loan associations licenced by the Bank of Albania (31.12.2015) 83 Annex19. Foreign Exchange Bureaus licenced by the Bank of Albania, 31.12.2015 92 Bank of Albania 3 2015 Annual Supervision Report TABLE CONTENT 4 REGULATORY FRAMEWORK AND LICENSING Table 1 Number of money transfer agents as at end-2015 23 5 PERFORMANCE AND RISK ANALYSIS IN THE BANKING SYSTEM AND NON-BANK FINANCIAL INSTITUTIONS Table 2 Banking system total assets and loan portfolio’s share in GDP 25 Table 3 Key banking system asset items 26 Table 4 Key banking system liability items 27 Table 5 Change in off-balance sheet items compared to the previous year 27 Table 6 Herfindahl (H) Index of asset, deposit and loan concentration 27 Table 7 Quarterly credit growth in 2015 28 Table 8 Lending by sector and purpose of use (in ALL billion and share of each to total loans) 29 Table 9 Structure of outstanding loans by term to maturity (in %) 29 Table 10 Structure of outstanding loans by currency (in %) 30 Table 11 Share of outstanding loans by category (in %) 32 Table 12 Type of collateral by sector and currency (in %) 34 Table 13 Shareholders’ equity and its components 41 Table 14 Main profitability ratios (in %, cumulative) 43 Table 15 Profitability ratios from main activity (in %, cumulative) 43 Table 16 Average profitability ratios (in ALL million) 43 Table 17 Efficiency ratio in ALL million 44 Table 18 The total assets of NBFI for the period December 2014 – December 2015 (in ALL billion) 45 Table 19 The net and gross trend for the total of the NBFI, for the period December 2014 – December 2015, in billion ALL 45 Table 20 Gross portfolio trend breakdown according to activities, December 2014 – December 2015 46 Table 21 Financial leasing portfolio according to the financed object, December 2015 46 Table 22 Factoring annual volumes and the outstanding until December 2015 46 Table 23 The trend of the loan portfolio quality ratio for the period December 2014 – December 2015, in percentage 47 Table 24 Volume of transfers and annual payments 2015 47 Table 25 The trend of the number of SLAs and their members in the period December 2014 – December 2015 48 Table 26 The trend of the assets of unions and the SLAs network for the period December 2014 – December 2015 (in ALL billion) 48 Table 27 The trend of the net and gross loan portfolio for the total of unions and the SLAs’ network for the period of December 2014 – December 2015 (in ALL billion) 49 4 Bank of Albania Annual Supervision Report 2015 CHART CONTENT 4 REGULATORY FRAMEWORK AND LICENSING Chart 1 Financial and banking sector structure and ownership 21 Chart 2 Number of bank branches/agencies performance in years 22 Chart 3 Geographical distribution of resident population (1) and of bank branches/agencies’ network (2), by prefecture 22 Chart 4 Foreign exchange bureaus through the years 23 5 PERFORMANCE AND RISK ANALYSIS IN THE BANKING SYSTEM AND NON-BANK FINANCIAL INSTITUTIONS Chart 5 Equity ownership structure by country of origin and performance over time 25 Chart 6 Monthly credit growth in 2015 (in %) 28 Chart 7 Outstanding loans to businesses and households as a percentage of total loans (in %) 29 Chart 8 Volume of outstanding loans by maturity (in ALL billion), up; and currency (in ALL billion), below 30 Chart 9 Share of foreign currency loans unhedged against the exchange rate risk in foreign currency loan portfolio (in %) 30 Chart 10 Loans by branches of the economy (in % to total loan) and non-performing loans by branches of the economy (in % to the portfolio of this sector) 31 Chart 11 Performance of non-performing loans portfolio and loan portfolio compared to the previous quarter (in %) 31 Chart 12 Outstanding non-performing loans in the banking system 31 Chart 13 Loan loss provisions 32 Chart 14 Net non-performing loans to regulatory capital 32 Chart 15 Outstanding non-performing loans to businesses and households 33 Chart 16 Outstanding non-performing loans by currency 33 Chart 17 Quarterly performance of foreign currency NPLs unhedged against the exchange rate risk to foreign-currency outstanding loans unhedged against the exchange rate risk 33 Chart 18 Loans secured by collateral, by type 33 Chart 19 Shareholder’s equity 41 Chart 20 Capital adequacy ratio and its components 41 Chart 21 Number of reporting entities 53 Chart 22 Number of queries submitted to the credit Registry by the reporting entities 53 Chart 23 Structure of reporting entitites at the credit Registry 53 Bank of Albania 5 2015 Annual Supervision Report 6 Bank of Albania Annual Supervision Report 2015 1 THE FUNCTION OF SUPERVISION Supervision is one of the main functions of the Bank of Albania. Its purpose is to consistently exercise adequate control over the banks and other entities that carry out financial activities licensed by the Bank of Albania. Pursuant to its legal responsibilities as the supervisory authority, the Bank of Albania aims to safeguard the banks soundness, and the banking and financial system stability, as well as to prevent crises in this sector and protect depositors. In view of fulfilling its mission, the supervision exercises three main functions: licensing of financial entities, regulation of their activity and constant control of activity. Specific structures are in place order to realize these functions, and working processes are established to maximize the realization of these three functions in the most effective way. Licensing is based on a set of minimum regulations, to be complied by the licensed entities. These regulations relate to the object and purpose of the activity. Licensing is carried out even during the exercise of the entity’s activity for matters related to changes in the entity’s activity or structures. Regulation is based on drafting and development of the pertinent regulatory framework, embodied in a wide range of bylaws. The regulatory framework aims to set out minimum quantitative and qualitative criteria, which allow sound entities with development potential to enter the market, as well as monitoring and setting of their activity on solid foundations. The regulatory framework is subject to constant amendments in order to be in line with the dynamics of the entities’ activity and the environment in which they operate, as well as to adapt to the changes in the best international practices in the ambit of regulation and supervision. The control function is based on preparing a continuous supervision cycle, which is carried out through a balanced coordination of on-site inspections and off-site analysis of the information received by the entities, in accordance to their nature, importance, problems and degree of complexity.