bULLETIN OF THE bANK OF ALbANIA

218 Pages·2014·4.16 MB·English

2014 H1 Bulletin of the Bank of Albania Bulletin of the Bank of Albania 2014 H1
bULLETIN OF THE bANK OF ALbANIA
2014 H1
PB Bank of Albania Bank of Albania 1
2014 H1 Bulletin of the Bank of Albania Bulletin of the Bank of Albania
If you use data from this publication, you are requested to cite the source.
Published by: Bank of Albania
Sheshi “Avni Rustemi”, Nr. 24, Tirana
Tel: [phone]
Fax: [phone]
E-mail: [email protected]
www.bankofalbania.org
Printed in: 370 copies
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2014 H1 Bulletin of the Bank of Albania Bulletin of the Bank of Albania 2014 H1
C O N T E N T S
EditoriaL
Financial Stability Map in Albania 5
Addresses and Presentations by Bank of Albania’s Administrators
in Activities in Albania and Abroad 9
Periodic Analyses 61
Trends in Lending 2014 Q2 62
Erjona Suljoti, Sofika Note, Olta Manjani
Information on the economic performance of Albania’s main
trading partners, 2014 Q2 77
Medvin Shehu, Jonida Bolano, Doriana Lama
Analysis of developments in the external sector of the economy, 2014 Q 1 83
Eglent Kika, Merita Boka, Olti Mitre
Gross external debt analysis, 2014 Q1 95
Eglent Kika, Merita Boka, Olti Mitre
Research Papers 109
Economic activity and lending: Is there evidence of decoupling after
the financial crisis? 110
Olta Manjani
Measuring financial systemic stress in the case of developing and
emerging European economies 119
Gerti Shijaku
Evaluating the crediting activity of Microfinance institutions
in the Albanian economy 131
Arlind Rama
GDP, expenditure components and deflators: New series, structural break
and quarterly interpolation in the period 1996-2012 138
“Exploring the main determinants of the potential growth trend
in Albania during 2003-2013” 154
Evelina Çeliku
House and rent prices: Evidence from a microdataset in Tirana 167
Delina Ibrahimaj
A non-linear model for albanian lek forecasting 183
Jonida Bolano
Bank of Albania News December-July 2014 193
Legal News, 2014 H1 201
Bank of Albania Management, as at 30 June 2014 212
Banks and branches of foreign banks licensed by the
Bank of Albania, as AT 30 JUNE 2014 213
Publications issued by the Bank of Albania during 2014 H1 217
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EdITOrIAL
FINANCIAL STAbILITy MAp IN ALbANIA
The assessment of financial stability remains one of the most difficult tasks for
all central banks that have included this objective among the main tasks of
their mandate. In early 2014, the bank of Albania published for the first time
the Financial Stability Map1, an important tool to assess developments in the
financial system and its exposure to internal and external risks. The construction
of this instrument supplements the broad base of methodologies established in
the framework of assessing the financial stability in Albania, aimed at various
financial stability aspects, with a view to providing the necessary information
in this regard2
In the absence of a single indicator that would comprise financial system
developments and determine whether the financial system is under stress,
central banks have constructed a series of methods to assess financial stability.
dalh et al. (2011) summarises the main methodologies central banks apply in
relation to indicators for financial stability assessment, according to the main
dimensions. They are detailed as follows:
a. Indicators which present the main developments in a given sector of the
financial market, such as data on banks' balance sheet in the case of
the banking sector, developments in the foreign exchange market, and
indicators about the interest rate. The IMF summarises these indicators
in what is known as the Financial Soundness Indicators. In the case of
the bank of Albania, these indicators are carefully monitored and serve
as the basis of the Financial Stability report. They incorporate the main
developments in the financial system at home and its exposure to various
risks facing it, such as the credit, exchange rate, and interest rate risks.
However, experience has revealed that, although these indicators largely
address the main developments in the financial system, the information
they provide is lagged, as it is processed after 1-3 months.
b. The aggregated indicators, which are generally constructed based
on market data and summarise the main developments in some of the
market segments in the form of a single index. In the case of Albania,
Kota and Saqe (2011) present the Financial Systemic risk Index (FSrI),
which measures the level of financial stress in the economy into a
single and comprehensive index. It assesses the interrelation between
1 The Financial Stability Map was first published in early 2014, analysing financial stability
developments until the end of 2013 (Financial Stability Report 2013 H2).
2 A comprehensive technical paper on the methodology used to construct the Financial Stability
Map will be published in the Bulletin of the Bank of Albania 2014 H2.
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various financial segments by measuring their impact on economic
growth. results show that the FSrI captures the pressures in the form
of the financial stress, not only from different market segments, but also
from their interaction. However, in the case of Albania, data suffer
from lack of frequent information from the market and are used only on
monthly basis. The Financial Strength Index is another tool, which, unlike
the Financial Systemic risk Index, incorporates various banking sector-
related developments in a simple aggregation and provides rapid and
summarised information on the strength of the entire sector.
c. Stress testing is another way to assess the banking sector's stability in
the event of strong macroeconomic shocks. In this context, the bank of
Albania is currently employing two approaches: a. top-down assessment,
whereby the central bank constructs suppositions about macroeconomic
developments according to various scenarios. Then it applies them on
data about the banks' balance sheet to assess their impact in terms
of capitalisation; b. bottom-up assessment, whereby the central bank
constructs macroeconomic suppositions. Then individual banks assess
the impact of such suppositions on their activity. In both cases, the aim
is to assess the banks' resilience to such extreme shocks. Currently, the
impact of macroeconomic shocks on elements such as portfolio quality
(Shijaku and Ceca, 2011) is unilateral as there is no feedback from
financial indicators towards macroeconomic ones. Meanwhile, the
macroeconomic model MEAM (dushku and Kota 2010) is the basis for
constructing the suppositions.
d. Several econometric models determine how economic shocks affect
financial indicators. The construction of these models is currently in bank
of Albania's focus and will aim at completing the framework for assessing
macrofinancial relations for stress test, projections and simulations
purposes. The first version of a macrofinancial model is introduced and
is being discussed internally at the bank of Albania (dushku and Kota,
2013).
The purpose of this material is to introduce a new method of processing
the information stemming from various risks facing the financial system, in
a single tool. This tool is known as the Financial Stability Map (FSM) and
introduces the conditions and main risks facing the financial stability in a given
country and beyond, through the use of a cobweb diagram. The purpose
of using such a diagram in financial stability analysis is to: summarise the
main fields, also called "categories" that constitute sources of potential risk to
financial stability; and, monitor over time how these sources of risk evolve.
Each category is based on a group of sub-indicators, which are considered
as more appropriate in reflecting risk or vulnerabilities to the financial stability.
Selection, and later, construction of categories and sub-indicators depend on
the structure of the economy and the financial system, and the discretion of
authors. For that reason, the cobweb diagrams by various central banks differ
in shape and design.
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The Financial Stability Map, constructed as a cobweb-style model, is a
technical instrument that summarises in a single graphic representation the risks
arising in a given moment from factors inside and outside the banking sector.
To construct the Financial Stability Map (FSM) for Albania, we refer to several
works such as the introduction of the IMF's global map by dattels et al. (2010)
and the construction of this map for a single country, as in the case of Norway,
by dahl et al. (2011) and New Zealand by bedford and bloor (2009). To
construct it, we have defined the main sources of risks or vulnerabilities that
arise from the banking sector, as the most dominant part of the financial
system, and from outside this sector, related to overall economic developments
and main economic agents. Following this logic, eight categories have been
selected: 3 related to the characteristics and structure of the banking sector
("capitalisation and profitability"; "liquidity and financing"; "banking sector
structure") and 5 categories outside the banking sector (developments in the
"domestic economy"; developments in the "external economy"; "households";
"businesses"; and "government"). These 8 categories make a full summary
of the domestic and external sources of risks and vulnerabilities facing the
Albanian financial system stability. Each category contains 4 or more sub-
indicators, totalling 38 sub-indicators.
The map constructed for the case of Albania seems to perform overall well,
reflecting the effects of external shocks (such as the financial crisis of 2007-
2008) or domestic ones to the country's financial stability. The performance of
averaged indicators for the selected categories reflects accurately the impact
and key points where main financial and economic indicators undergo breaks
as a result of domestic or global crisis. Some of the categories react faster,
thus signalling elevated risk to stability, while others react more slowly. Since
the instrument measures the risk level based on the historical time series (sub-
indicators) included under each category, it helps improve our perception of
the financial stability situation. However, the moment of reaction is closely
related to the moment of reporting the data used for constructing the sub-
indicators for each category. Some of them are lagged by several months,
which is a drawback to the model. Moreover, the performance of the model
depends highly on the type of sub-indicators used to construct each category,
which leaves it open for discussion. In some cases, for some indicators the
experts’ judgment is necessary to determine the final position of the risk score.
Taking into account the above-mentioned remarks, the FSM should not be seen
as an instrument that judges whether the financial system is stable or not, but
as a practical tool to anchor discussion, and focus readers attention to actual
risks to financial stability. The financial stability assessment requires a series
of factors that may be aggregated into a single model. For that reason, it is
important to bear in mind that FSM results should be used together with results
of other analyses and instruments the bank of Albania uses regularly to judge
on the financial stability in the country.
While the financial environment is very dynamic and every crisis has a specific
nature, it is vital to update and improve the map regularly, adapting to
domestic and external economic developments, for better and timely capturing
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the risks to our financial system. This may require incorporating new indicators
or further elaboration of the existing ones.
Currently, the FSM is updated regularly every three months, and the results
are published in the half-yearly Financial Stability report. FSM results serve
to assess the performance over time of risks to which the Albanian financial
system is exposed. Moreover, it serves to compare various results between
them and the main contributors to each risk. In this way, the decision-making
and economic analysis at the bank of Albania may focus on discussing the
main elements affecting the financial system and its stability, enriching the
existing methodologies in this institution.
to our financial system. This may require incorporating new indicators or further
elaboration of the existing ones.
Currently, the FSM is updated regularly every three months, and the results
are published in the half-yearly Financial Stability report. FSM results serve
to assess the performance over time of risks to which the Albanian financial
system is exposed. Moreover, it serves to compare various results between
them and the main contributors to each risk. In this way, the decision-making
and economic analysis at the bank of Albania may focus on discussing the
main elements affecting the financial system and its stability, enriching the
existing methodologies in this institution.
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AddrESSES ANd
prESENTATIONS
by bANK OF ALbANIA’S
AdMINISTrATOrS IN ACTIvITIES
IN ALbANIA ANd AbrOAd
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SpEECH by ArdIAN FULLANI, GOvErNOr OF THE
bANK OF ALbANIA
On the Monetary policy decision of the
bank of Albania’s Supervisory Council
29 January 2014
Today, on 29 January 2014, the Supervisory Council of the bank of Albania
reviewed and approved the Monetary policy Statement of the bank of Albania
on the second half of 2013. Given Albania’s latest monetary and economic
developments and discussions on their outlook, the Supervisory Council of the
bank of Albania decided to keep the key interest rate unchanged, at 3.0%.
The Supervisory Council deems that the inflationary pressures from the real
and financial sectors of the economy are weak and will remain so. These
circumstances require maintaining a stimulating monetary policy over the
period ahead. The monetary stimulus, transmitted through the low key interest
rate and ongoing liquidity injection, provides the proper conditions for meeting
our inflation target in the medium term.
Let me now proceed with an overview of the economic developments and key
issues discussed at today’s meeting.
***
year 2013 was a difficult one for the Albanian economy. Aggregate demand
and economic growth remained at low levels. Inflation fluctuated around bank
of Albania’s lower targeted band, while the budget deficit and public debt
increased sharply. The unfavourable economic environment, both at home
and abroad, led to this performance. Moreover, Albania’s June parliamentary
elections added uncertainties to the economy and financial markets. As we
have already stated, consumption and investments continue to suffer from low
confidence and tight lending terms. Fiscal policy is faced with a high public
debt level, which has limited the possibilities for macroeconomic stimulus. On
the other hand, the external environment was characterised by ongoing euro-
area problems, hence limiting our export growth and making financial markets
pursue conservative policies in terms of lending to developing economies.
However, 2013 saw positive developments. Financial markets were
characterised by improved liquidity and downward interest rates, in response to
bank of Albania’s easing monetary policy. Also, the introduction of new financial
agents and instruments has further deepened these markets. The banking system
remains solid and well-capitalised, regardless of the increase in non-performing
loans. The current account deficit has narrowed, creating better premises for a
sustainable external position of the economy and stable exchange rate. These
developments have contributed to maintaining macroeconomic stability.
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