1. How would you assess the performance of your bank and other banks operating in Albania during the past year?
2022 will be remembered as a turning point moment in history when the widescale war returned to Europe. The disruption caused by the war had an impact on the economy of the continent and in Albania, an indirect impact has been felt. However, the banking sector and particularly Raiffeisen Bank has been facing these headwinds with strong capital buffers and liquidity metrics.
Raiffeisen Bank has had a sound year with an increase in net interest income of 30% yoy, especially the 1Y treasury bill which also serves as a benchmark for the pricing of loans, but also due to an increase in volumes.
Preliminary results show that Raiffeisen Bank closed 2022 with an outstanding performance. I can share a few figures with you that highlight our results (still not- audited results). I can mention here that according to IFRS standards, assets increased by 9%, while loan growth was close to double-digit at 9.3% yoy. Net profit posted an increase of 4.2 mio euros to 32.3 mio euros for the whole of 2022. In addition, ROE was 13.4% or slightly higher compared to 2021.
Based on the local accounting standards, the banking sector's net profit decreased in November due to a hit in the fair value of securities held for trading. In the first 11 months of 2022, the net profit of the banking sector was more than 13% lower than in the same period of 2021. The reason for this is the above-mentioned valuation of securities held for trading which were negatively impacted by the sharp increase in yields. Hence, the ROE of the banking system declined to 9.9% from 12.5% in 2021, remaining however at a still satisfactory level.
For the first time in 2022, in November the banking sector witnessed a slowdown in lending activity with loans decreasing MoM by 20 mio euros, although most of this can be attributed to the appreciation of lek versus euro. However, the yearly growth rate was still positive, although these are the first signs of the economic actors’ reaction toward elevated inflation which is impacting their overall activity.
And finally, I must say that the Central Bank has done a good job in preserving price and financial stability, during these turbulent times, and we appreciate the collaboration and support received from them.
2. Digitalization as a process is a general good that should be integrated as soon as possible with the e-Albania system, or do you have any suggestions?
Taking the case of banking industry, digitalization has greatly impacted it in recent years.
It is the cornerstone of the strategy of banks all over the world. Banks have been able to offer new and improved digital services to customers and this has increased convenience for customers and has also allowed for more efficient operations for banks.
However, digitalization in every aspect also brings new challenges. Not only banks, but each institution trying to undergo the digital transformation must be able to adapt to the fast-paced changes in technology and stay up to date with the latest security measures.
The Albanian Government is aiming to digitalize all public services through the online platform of E-Albania. The such solution offers efficient, paperless, and transparent public services for all Albanian citizens and Businesses. Overall, we remain positive and open to any digitalization in performing payments. We are investigating and testing the process to assess further possibilities.
3. The Bank of Albania and the Ministry of Finance aim to minimize the use of cash and cash payments. How do you consider this initiative that started a long time ago? How capable is Albania to enter such a payment system that approaches the 100% level?
We are all aware of the benefits and advantages of a non-cash economy.Our market has made a lot of progress in this direction thanks to the initiatives of the Ministry of Finance, BoA, and the investments of second-level banks.
The ease of carrying out financial transactions is one of the main incentives to move towards a digital economy.
We at Raiffeisen Bank can proudly state that we have been pioneers in the digitalization of banking products & services in Albania. Being part of one of the largest financial groups in Europe, such is Raiffeisen Bank International, gives us the opportunity to come up with innovations and market-changing products.
Continuously, we work in the direction of reducing cash usage and replacing these transactions with digital ones. Concrete steps to mention are:
-we incentivize with commission discounts or facilities Digital transactions vs. Branch transactions
-we continuously invest in our digital platform Raiffeisen ON to enhance it for easiness of customers
-Another example is RaiPay- the first digital wallet in Albania (with NFC technology)
We strongly believe that the banking sector in Albania is prepared to support a 100% payment system. -Simple example, we are already experiencing 5 times more transactions in domestic EUR payments after the new Euro Clearing process was successfully implemented by the BoA in January 2022.
Regardless of all the measures taken by a bank, I think that greater efforts are required by all actors, be it public or private, including a change in people's perception of cash usage, as well as enhancing the supportive legal framework.
4. Has the increase in interest rates made loans more expensive this year? Are you afraid of the fact that the level of bad loans will increase? Will you use mechanisms to prevent such a thing from happening?
Yes, the increase of loan interest rates is an inevitable consequence of the tightening of the monetary policy, and not only in Albania. High inflation warrants central banks to act by increasing rates in order not to worsen the economic conditions, especially for poor individuals who rely mostly on a limited income.
As we have witnessed, this is now happening all over the world. On the other side, when a tightening cycle begins this might be also accompanied by a worsening of the quality of loans, but we are prepared for this not only because we take provisions based on enhanced standards set by both regulators BoA and ECB, but also because we have already an experience in managing a cycle of non-performing loans in 2015-2016 which has helped us sharpen our focus on treating bad loans.
We are also confident that the economy in Albania will weather well with the storm approaching Europe this winter and the economic growth will mitigate the overall impact on the NPL.
However, there is a risk especially for unsecured loans mostly consumer ones, and less for mortgage loans and those companies most exposed to the declining spending power of consumers.
Considering that the overall indebtedness of individuals is low compared not only to European standards but also regional, I think that Raiffeisen will manage NPL quite in a satisfactory way based also on a consolidated mechanism of conservative loan-to-value and service-to-income ratios that we adopt from many years now.
5. Which sectors or segments of the economy that you have credited, have been most affected by the economic crisis (in the current year by the inflation crisis and earlier by the pandemic)?
The effect of the pandemic has been short-lived in the economy due to the fast reopening of the country. It should be remembered that Albania was dealing with another shock prior to the pandemic i.e., the earthquake, and we managed to escape both these impactful events unharmed.
The inflation shock is still unfolding, and we cannot come to conclusions yet on the impact it will have on the economy and the profitability of the banking sector. However, from the first signs it seems that considering that high inflation will shrink the disposable income of poor and middle-income families, it will have an impact on private consumption. The latest contributions from the government will somehow mitigate this impact for a certain part of the population, but overall consumption is expected to suffer. Therefore, a trade that makes the greatest contribution to overall lending activity is believed to be impacted by this.
Construction has been growing significantly in the last years, and in the private residential part we might witness a slowdown considering that high inflation will limit the availability to buy properties and an increase in interest rates will force banks to be more conservative in lending.
Regarding your question, there are few industries that have posted negative lending growth rates if overall banking sector lending activity is considered. The most impact of the pandemic has been the services and especially entertainment services, which have not recovered yet. Extractive industry lending also has had a lackluster performance, while Construction has had very strong growth. A trade that has the lion's share of lending has experienced gentle growth. We expect Trade to bear the brunt of the high inflation rate, which will probably lead to consolidation in the sector which suffers from fragmentation and low productivity.
6. In the face of this year's increased online cyber-attacks on public and private institutions, how safe are people's savings and personal data?
CyberSecurity is one of the main pillars of our strategy and one of the most dynamic. It has been in our focus for years; adhering to international security standards and closely monitoring global threats, especially those targeting financial institutions. Progressively strengthening our security with the latest technologies in numerous defense layers.
Cyber-attacks are part of our reality and will continue to be present considering the evolution of services/technology and geopolitics dynamics. Nevertheless, there are a number of mechanisms to prevent successful attacks and minimize/isolate their impact.
The threat landscape has changed toward cybercrimes and so has evolved our security, focusing more on information and cybersecurity. Any digital service has cybersecurity as a cornerstone. None of the digital services would have been possible if security hadn’t been equally advanced.
In addition, it is crucial for every one of us to educate ourselves about the risks associated with technology which has become an integral part of our life. We continually reach out to our customers (and the public) with awareness campaigns via all communication channels aiming to increase cyber consciousness in Albania. In addition, we are also closely working and following the BoA and other institutions’ directives in this regard.