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Round Table 16 September 2015 Albanian Association of Banks Content I. Banking growth and impact to the economy II. Lending III.Profitability & Interest rates IV.NPLs and recovery challenges Albanian Association of Banks Banking Sector – in the last decade Steady growth …. Indicator No. of Banks Total Assets (mio EUR) Assets in % of GDP Total Loans (mio EUR) Lending in % of GDP Total deposits (mio EUR) Deposits in % of GDP 2004 16 3,375 57% 552 9% 2,975 48% 2005 2006 2007 17 17 17 4,051 5,072 6,100 60% 69% 76% 1,042 1,553 2,401 16% 22% 30% 3,570 4,151 4,949 51% 57% 62% 2008 2009 2010 2011 16 16 16 16 6,690 6,424 7,189 8,063 81% 75% 81% 85% 3,205 3,261 3,562 4,036 37% 39% 40% 43% 5,007 5,032 5,927 6,586 60% 59% 63% 70% 0.25 100% Assets in % of GDP 90% 70% 0.15 60% 4 Contribution of the Financial Sector on GDP growth 0.2 80% 2012 2013 2014 16 16 16 7,984 8,546 8,798 89% 91% 92% 4,157 4,042 4,232 43% 41% 42% 7,134 7,310 7,624 73% 74% 75% 3.5 Contribution of FS (left, in pp) 3 Real growth of GDP (right, in %) 2.5 2 50% 0.1 40% 1.5 30% 1 0.05 20% 0.5 10% 0 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 2010 2011 Albanian Association of Banks 2012 2013 2014 2015 …increased capital invested 19.0 Indicator Shareholders' equity in (mio EUR) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 15-Jun 160 203 266 343 433 577 615 671 700 730 737 792 Capital adequacy (%) 21.6 19 16.2 17.1 17.2 16.2 15.4 15.6 16.2 18 16.8 16 Compared to the region: 25.00 CAR 18.5 20.00 18.0 15.00 17.5 17.0 10.00 16.5 5.00 16.0 15.5 0.00 Albania Western Balkan Countries Central Eastern Europe 15.0 14.5 14.0 2011 2012 2013 2014 Albanian Association of Banks CAR 2014 …continuous infrastructure improvement Indicator No. of Bank Outlets Number of employees No of Banks - internet banking No of Banks - mobile banking 2006 292 4,263 1 900 2007 392 5,206 4 7,000 800 6,000 700 5,000 600 2008 517 6,332 6 2009 533 6,384 10 2010 559 6,430 11 2011 552 6,710 11 2012 556 6,820 11 5 2013 546 6,709 11 7 2014 526 6,825 12 8 900,000 90,000 800,000 80,000 700,000 70,000 600,000 60,000 500 4,000 500,000 50,000 400 3,000 400,000 40,000 300,000 30,000 200,000 20,000 100,000 10,000 300 2,000 200 1,000 100 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 ATMs 335 433 642 741 771 805 823 822 811 POSes 1,183 1,776 2,953 4,370 4,903 5,126 5,307 5,668 6,540 0 - 2006 2007 2008 2009 2010 2011 2012 2013 2014 Debit Cards 229,021 427,430 482,072 543,141 667,548 693,958 719,802 741,128 777,195 Credit Cards 9,754 10,439 15,246 22,793 27,300 37,893 49,173 64,432 84,824 Albanian Association of Banks 0 Lending in recent years 4,500 50% 4,000 45% 3,500 40% 35% 3,000 30% 2,500 25% 2,000 20% 1,500 15% 1,000 10% 500 5% 0 0% 2004 2005 2006 2007 2008 Total Loans (mio EUR) 2009 2010 2011 2012 2013 2014 Lending in % of GDP 160 Credit to Private Sector (Index, December 2007 = 100) 150 140 130 120 110 Albania Western Balkan Countries Central Easter Europe 100 90 80 12/2007 12/2008 12/2009 12/2010 Albanian Association of Banks 12/2011 12/2012 12/2013 12/2014 …compared to the region Total Loans (in BN EURO) & Annual Change (In %) Greece Romania Bulgaria Serbia Bosnia & Herzegovina Albania Macedonia, FYR Kosovo Montenegro 2008 2009 2010 2011 2012 2013 2014 198.0 ∆ 54.0 ∆ 24.7 ∆ 13.3 ∆ 7.4 ∆ 3.2 ∆ 2.7 ∆ 1.2 ∆ 0.9 ∆ 190.5 -3.8% 47.5 -12.2% 25.6 3.6% 13.4 0.6% 7.2 -3.2% 3.4 5.3% 2.8 3.4% 1.3 8.9% 0.7 -30.2% 251.3 32.0% 50.1 5.5% 25.9 1.2% 15.5 15.8% 7.4 3.5% 3.6 5.3% 3.0 7.0% 1.5 13.2% 0.5 -26.2% 241.9 -3.7% 53.1 6.1% 26.7 3.2% 16.8 8.4% 7.8 5.3% 4.0 12.5% 3.3 8.5% 1.7 16.4% 0.3 -30.1% 221.8 -8.3% 51.2 -3.6% 27.5 2.9% 16.7 -0.7% 8.2 4.1% 4.2 3.0% 3.5 6.8% 1.8 3.8% 0.3 -12.2% 212.4 -4.3% 49.8 -2.7% 27.5 0.0% 16.0 -4.2% 8.4 3.0% 4.0 -2.7% 3.7 6.3% 1.8 2.4% 0.4 22.9% 206.8 -2.6% 48.0 -3.7% 25.3 -8.2% 16.0 -0.1% 8.6 2.9% 4.3 5.2% 4.1 9.9% 1.9 4.2% 0.3 -12.6% Albanian Association of Banks New loans & Recovery in 2015 2,500 In Mio Euro 2,000 1,500 1,000 500 2008 2009 2010 New Loans to Businesses 2011 2012 2013 2014 2015H1 New Loans to Individuals Outstanding loans for year 2015 corrected with the amount of about 80 Mio Euro of bad loans written off by banks from January – June 2015 4,360 9% 4,340 8% 4,320 7% 4,300 6% 4,280 5% 4,260 4% 4,240 3% 4,220 2% 4,200 1% 4,180 0% Jan-15 Feb-15 Mar-15 Apr-15 Outstanding Loans (mio Euro) Albanian Association of Banks May-15 Jun-15 Annual Change (%) Profitability 12.0 ROE (in %) ROA ( in %) Albanian Eurobond Coupon Rate 10.0 8.0 6.0 4.0 2.0 0.0 2009 2010 90 2011 2012 2013 2014 Interest Income (% to total Income) 80 70 60 50 40 30 Albania 20 2008 Macedonia, FYR 2009 2010 Serbia 2011 Bosnia & Hecergovina 2012 2013 Albanian Association of Banks 2014 Kosovo Q2 2015 Lending interest rates-regional comparison 15.0 16.0 Lending interest rates 14.0 Lending interest rates - 2014 14.0 13.0 12.0 12.0 10.0 11.0 10.0 8.0 9.0 6.0 8.0 4.0 Albania Western Balkan Countries Central Eastern Europe 7.0 6.0 2.0 - 5.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 14.0 Interest rate spread (%) 12.0 10.0 Average lending interest rate, and spread between loans and deposits rates in domestic currency, as reported by IMF 8.0 6.0 4.0 2.0 - 2004 Kosovo Serbia Albania 2005 2006 2007 2008 2009 Macedonia, FYR Croatia 2010 2011 2012 2013 2014 Montenegro Bosnia and Herzegovina Albanian Association of Banks NPLs – a regional issue NPL in % of total loans 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Albania 4.2 2.3 3.1 3.4 6.6 10.5 14.0 18.8 22.5 23.5 22.8 Bosnia and Herzegovina 6.1 5.3 4.0 3.0 3.1 5.9 11.4 11.8 13.5 15.1 14.0 Croatia 7.5 6.2 5.2 4.8 4.9 7.7 11.1 12.3 13.8 15.4 16.7 Kosovo .. .. .. .. .. .. 5.8 5.7 7.4 8.5 8.2 Macedonia, FYR 17.0 15.0 11.2 7.5 6.7 8.9 9.0 9.5 10.1 10.9 10.8 Montenegro 5.2 5.3 2.9 3.2 7.2 13.5 21.0 15.5 17.6 18.4 17.2 Serbia 22.2 23.8 4.1 8.4 11.3 15.7 16.9 20.0 18.6 20.6 23.0 Albanian Association of Banks Main Reasons for high NPLs Economic slowdown - shortage of liquidity in the market. Government arrears to businesses. Lending boom between 2004-2008 with somewhat relaxed lending conditions. Denominator: Low lending growth - low demand Conservative regulatory framework (BoA) on the classification and provisioning of non-performing Loans Judiciary System and lack of efficiency of execution processes Albanian Association of Banks Difficult execution of collateral Obstacles in the courts: Trials extended beyond deadlines specified in the CPC; Unjustified security measures established by Courts for creditors’ claims; Limited expertise of judges on loan contracts as executive titles; Not calculating liability for interest on unpaid amounts (accrued) Lack of legal provisions, or misrepresentation of existing provisions related to the process of collateral execution Inaccuracies in the registration system of real estate and missing information in the respective assets files Lack of transparency in the auction processes conducted by bailiffs (public or private) for the execution of the collateral. Lack of standards (subjectivity) in the appraisal process; Unreliable / delayed documentation from state institutions (e.g. OSHEE, etc) Albanian Association of Banks Thank you! Albanian Association of Banks