Albanian Financial Supervisory Authority licensed on Thursday the company “Albanian Securities Registry- ALREG”.

ALREG’s licensing was a necessary step to enable the trade of business securities in ALSE.

Trading at ALSE it is impossible without a registry where securities ownership data are held (central depository) and transactions are executed with them. However, ALREG will also need a second license, before starting the activity.

The license granted on Thursday from AFSA gives the rights to register securities, meanwhile that ALREG must also apply into Bank of Albanian to be licensed as settlement system for payments executed at ALSE.

After having the additional license from Bank of Albanian, ALREG will perform the whole process of clearing and settlement of transactions from business securities, by providing to Albanian Securities Exchange ALSE the path to trade shares and corporate bonds.

According to ALSE’s top level management, the exchange will be ready for private companies within the first 6 months of the current year.

However, ALREG’s activity will not only be in the function of ALSE, but will also as a registrar for securities that will be traded in private, including shares of joint stock-companies or debentures.

“Albanian Banking Sector is well-capitalized, liquid and profitable”- writes International Monetary Fund in the last report about Albania, adding that, regardless of these strong points there is needed more efforts to improve elasticity.
“Financial sustainability indicators are improved, with average rates of capital and assets that have exceeded the minimum required from banking regulators” – it is expressed between the lines. The liquidity of banking sector is evaluated very high, but this also comes because of lending weakening.
IMF also highlights challenges of banking sector. One of the challenges is new, which is referred to European banks exiting the domestic market. This fact increases the challenges regarding supervision, expresses the institution based on Washington. IMF clarifies that, leaving or the plan of the European banks to leave Albania during the last 2 years is the result of their strategy to get out from the South Eastern Europe region and Balkan.
Banks ownership is being transferred to domestic banks and to non-european groups, highlights the institution.
IMF also focuses to Albanian Securities Exchange. Development of capital markets will strengthen financial intermediation and support the domestic economical development.
Capital Markets in Albania are expanding, but are limited only in government securities and inside trade.

Roel Korkuti/SCAN

The volume of secondary market of Government securities during the year 2018 was dominated by transactions in short-term instruments (T-Bills) at 70.60%. The remaining part consisted of long-term instruments (notes and bonds) at 29.40%. In terms of the number of transactions, 87.80% of all transactions in the secondary market of Government securities were in T-Bills.

Statistical data on the Government securities retail market for the year 2018, indicate that the market was dominated by transactions “Purchase in the primary market” and “Payment of nominal value on maturity date” with respectively 48.55% and 34.56% of the total volume.
Transactions of the individual investors, dominate at the Government securities secondary market with 98.85% of all transactions in the market.

Graphic: Government Securities for the year 2018

A – Purchase on the primary market
B – Sales from financial intermediary portfolio
C- Purchase prior to maturity
D- Pledging Government securities as collateral

E- Payment of nominal value at maturity

During the year 2018, the B type transactions “Sales from financial intermediary portfolio” increased by ALL 484 million or 10.32% and the number of transactions increased by 0.68% compared with the year 2017.B and C Type Transactions

During the year 2018, the C type transactions “Purchase prior to maturity” increased by ALL 694 million or 27.00% and the number of transactions also increased by 0.10% compared with the year 2017.

During the year 2018, there was an increase in the absolute total amount of the transactions of B and C type, by about ALL 1,177 million compared with the year 2017.

PARIS/BUDAPEST (Reuters) – French bank Societe Generale (SOGN.PA) has agreed to sell its bank in Serbia to Hungary’s OTP Bank OTPB.BU, as SocGen continues its retreat from parts of eastern Europe while OTP gradually increases its presence in the region.

SocGen did not disclose the amount of the transaction, although it said the sale would have a 108 million euros ($123.25 million) negative hit on its fourth quarter earnings.

The sale will nevertheless have a positive effect on the French bank’s solvency ratio. SocGen’s core equity tier 1 ratio will rise by 8 basis points while its risk weighted assets will fall by 1.95 billion euros.

Shares in SocGen were down by around 2 percent in early session trading on Thursday, with the broader market falling by a similar amount after the U.S. Federal Reserve raised interest rates and dashed hopes of a more dovish outlook. [MKTS/GLOB]

SocGen expects to close the Serbian deal in the coming months following regulatory approval.

In August, the French bank had already agreed to sell its banks in Bulgaria and Albania to OTP. Societe Generale will remain present in Serbia via its car fleet management business ALD (ALDA.PA).

OTP, central Europe’s largest independent lender, has been on an expansion drive in recent years to capitalize on the fact that major western banks with a smaller local footprint have been scaling back their presence in central and eastern Europe.

Last month, OTP got the green light to buy SocGen’s Bulgarian businesses, taking its market share to 19 percent. OTP, which also bought Splitska Banka in Croatia last year, has said it was looking for further expansion opportunities.

SocGen has said it intends to rejig its footprint in a bid to boost profits by exiting from countries or businesses where it lacked critical size, while consolidating its position in areas where it is already strong.

In 2018, Societe Generale has sold assets in Belgium, eastern Europe and South Africa, while it has acquired the market activities of Frankfurt-based Commerzbank (CBKG.DE).

The French bank’s Chief Executive Frederic Oudea has identified Germany as a crucial market.

An International Monetary Fund (IMF) mission, led by Mr. Jan Kees Martijn, visited Tirana during November 6–20, 2018 for the annual Article IV consultation discussions. At the end of the visit, the mission issued the following statement:

Albania’s economic growth has trended upward in recent years, as the country has benefitted from the implementation of reforms and from the economic expansion of its European trade partners. At the same time, much remains to be done to make this growth more sustainable and inclusive, and to reduce the appeal of emigration. It is also important to build stronger buffers, especially now that risks to Europe’s economic outlook have increased. Key reforms include strengthening the rule of law and economic institutions, removing obstacles to higher private savings and investment, and reducing public debt at a faster pace by enhancing the management of public investments and broadening the revenue base. In addition, safeguarding financial stability within the changing architecture of the banking sector increases the complexity of financial supervision. Progress on these fronts should also help Albania in its pursuit of further integration with the European Union.

A mostly positive outlook

A temporary push from electricity generation owing to favorable weather conditions is expected to boost growth to 4 percent this year, and to dampen it somewhat in 2019, to 3.7 percent. Over the medium term, we project growth to stay close to 4 percent, supported by buoyant exports, including tourism, and investments in infrastructure. The exchange rate has appreciated sharply since March, putting downward pressure on inflation, which is expected to rise very gradually to reach its 3 percent target by 2021. In October, the authorities successfully issued a €500 million Eurobond with a seven-year maturity, at a favorable rate of 3.50 percent. As large energy projects with import-intensive components are tapering off, we foresee the current account deficit narrowing to around 6 percent of GDP over the medium term. Although the banking system is well-capitalized and liquid, the provision of credit to support business investments remains weak. Non-performing loans (NPLs) have declined by more than 10 percentage points since 2014, but they remain high in some banks.

However, risks are tilted towards the downside. Albania is strongly exposed to the increasing risks to growth in Europe, including in its main trading partners. A downturn in these countries could spill over through lower exports, remittances, and Foreign Direct Investment (FDI). Moreover, the expected tightening in global financial conditions would raise Albania’s cost of financing. In addition, there are also important domestic risks. Looking forward, structural reforms —including in public finance management, the energy sector, and judicial system—if insufficient, could soften confidence and delay convergence with regional peers. Adverse weather conditions could affect electricity generation, creating risks to the budget.

C ontaining fiscal risks and improving the quality of public goods

Fiscal consolidation should be accelerated. Fiscal deficit reduction is needed to create fiscal buffers; if adverse risks to growth were to materialize in the near term, there would be very limited space for fiscal stimulus. We project that, in the absence of additional measures, the government deficit will remain close to 2 percent of GDP in 2018 and beyond, resulting in continued declining path of public debt, although with slower reduction than we would recommend —to 62.3 percent of GDP by 2021 (including projected general government arrears of 0.6 percent of GDP). This path assumes maintaining a prudent reserve buffer in the single treasury account, equal to 1 percent of GDP. To achieve the authorities’ objective of reducing public debt to 60 percent of GDP by 2021 in a sustainable manner, further fiscal adjustment will be needed. Failure to meet this target could undermine the confidence of financial markets. For 2019, we would advise an additional reduction in the deficit by more than 0.5 percent of GDP, which can be achieved through a mix of excise-rate indexation, environmental taxation, and further broadening of the tax base. decrease

Strengthening the fiscal rule would support consolidation and the credibility of the fiscal framework over the longer run. We recommend setting targets for the annual (primary or overall) fiscal balance, to underpin the legislated target of reducing debt to no more than 45 percent of GDP.

Given the absence of fiscal space, we strongly urge the authorities to refrain from introducing ad-hoc tax cuts, exemptions, or preferential treatments and consider rolling back those already implemented. These make the tax system more complicated and less predictable, thereby undermining both the investment climate and tax collection. At the same time, actions to strengthen the quality of the revenue administration are progressing, including through a new system for data integration that is being established in GDT . In addition, we welcome the progress in property tax reform and the expected launch of the fiscal cadaster in January 2019. Further strengthening of the database and of valuation methodologies will be important to enhance transparency and to support the implementation of this system by the local tax authorities.

On the expenditure side, efforts to strengthen efficiency should not erode the level of spending in priority areas. The need for upgrading education, health care, and infrastructure towards European standards requires raising both the quality and the level of spending. In particular, spending on education remain low while skills shortages are a serious constraint to productivity and growth.

The rapid increase in Public-Private Partnerships (PPPs) has raised fiscal risks, calling for additional improvements in the public investment framework. It is essential to strengthen investment planning and execution at all levels of government, including local and central governments and state-owned enterprises, and to redouble efforts towards obtaining value-for-money. Within public investment, the stock of PPPs is expanding. The documents accompanying the budget for 2019 foresee, in addition to the existing stock of PPPs of 31 percent of GDP (of which concessions in energy of more than 23 percent), a pipeline of potential new PPPs capped at 15 percentage points. We welcome current efforts to bolster the role of the Ministry of Finance and Economy as a gatekeeper in containing the potential fiscal cost of PPPs. We also advise promoting a competitive bidding process by halting the acceptance of unsolicited PPP proposals. While the projected PPP-related spending remains below the legal limit of 5 percent of tax revenues, this leaves little room for any additional government-funded PPP projects.

The increase in budgetary arrears during 2017 should be addressed without delay. Arrears are estimated at 1.5 percent of GDP as of end-September 2108 (including local governments). Their prevention and control require strengthening revenue forecasting and cash management, and further improving commitment controls, in particular by the Road Authority. Paying value-added tax (VAT) refunds promptly is important for creating trust in the tax administration and the functioning of the VAT system.

The inclusion of a fiscal risk assessment in recent budgets is welcome, but the depth and coverage of the published document needs to be enhanced. This should involve extending the analysis to a wider range of risks to the public-sector balance sheet including, but not limited to, a more granular analysis of large contingent liabilities, including those embedded in PPP contracts. The assessment should also present mitigation measures, to enhance the credibility of budget estimates.

Planned reforms to make the electricity sector financially sustainable should be implemented in a steadfast manner. The reforms, guided by the five-year financial recovery plan prepared with World Bank support, foresee the clearance of arrears, a further reduction of distribution losses, and better targeting of investments. Completing the reform process also requires timely decisions on the governance structure of the public energy sector companies, pricing (throughout the production chain) that ensures cost recovery, and contingencies to deal with droughts.

Making monetary policy more effective

The current accommodative monetary policy stance remains appropriate until inflation approaches the target, but structural bottlenecks mute policy effectiveness. Although the lowering of the policy interest rate to a historical minimum has been transmitted to financial markets, the upward effect on headline inflation remains to be seen. Monetary transmission is constrained by the extensive use of euros and cash (rather than lek deposits) and structural weaknesses in the provision of credit, including continued high NPLs, weaknesses in the property rights and insolvency regimes, high informality, banks’ deleveraging and risk aversion. Addressing these bottlenecks would support credit growth and money creation and enhance the transmission of monetary policy.

Within Albania’s flexible exchange rate regime, the authorities have intervened to dampen the recent strong appreciation pressures. Since June-2018, the Bank of Albania (BOA) has conducted unscheduled interventions in the foreign exchange market in response to the sharp appreciation of the domestic currency. These purchases have been focused on preventing disorderly market conditions and on dampening the downward pass-through effects on inflation, within the BOA’s mandate of inflation targeting. Looking ahead, we encourage the authorities to phase out these operations as disinflation risks recede; exchange rate flexibility has served Albania well, by mitigating the impact of shocks on the economy.

A stronger financial system

Albania’s financial landscape is changing: the decline in NPLs should set the scene for increased lending, while non-EU banks are playing an increasing role. The BOA continues to improve its supervisory and regulatory framework, but pockets of vulnerability remain.

  • Reducing NPLs. The authorities’ approach has been effective in reducing the NPL ratio, especially through write-offs. A further reduction calls for: (i) strong enforcement of the new Bankruptcy Law, (ii) enactment of the regulatory framework for out-of-court settlement agreements to resolve NPLs, (iii) resolving the deadlock around more efficient operations of private bailiffs and (iv) rules to accelerate loan write-offs further.
  • Supporting the quality of the banking system. Subsidiaries of EU banks have played an important role in setting the standard for banking in Albania. As bank ownership is shifting to domestic and non-EU conglomerates, bank supervision has a critical role in containing risks stemming from related-party lending, cross-border lending, and large exposures. To face these challenges, as well as new Basel standards, it is crucial that the supervision department of the Bank of Albania is adequately staffed to conduct more frequent on-site inspections of banks that pose elevated risks.
  • Developing financial markets. A well-functioning sovereign debt market provides the foundation for developing other financial instruments. The authorities are strongly encouraged to commit to the predictable issuance of short-term T-bills and to balance the reduction of debt-service costs with a focus on developing domestic capital markets. In addition, developing second- and third-pillar private pension plans would enhance the social safety net through new savings vehicles. As the market evolves, financial literacy should be enhanced to mitigate risks and stimulate financial inclusion.
  • De-euroization strategy. The introduction in July of differentiated reserve requirements for foreign currency deposits was a useful step, in line with the de-euroization plan. As a next phase, it would be helpful for the authorities to prepare specific actions to discourage pricing and payment of domestic transactions in foreign currency.
  • AML/CFT. Ongoing steps to bolster the AML/CFT framework will be needed to address vulnerabilities and safeguard the integrity of Albania’s financial system.

Enhancing the Business Climate and the rule of law

Determined efforts are needed to improve the business climate to promote faster and more inclusive growth, stronger regional integration, and to blunt the appeal of emigration. In this context, priorities include (i) vigorous implementation of judicial sector reform, enforcement of the rule of law, and the anti-corruption strategy; (ii) strengthening the framework for property and contractual rights to foster private sector credit growth and facilitate FDI; (iii) improving the quality of health care and education, which is critical for curtailing the deepening shortage of skilled labor; (iv) closing infrastructure gaps with regional peers; and (v) aligning rules and standards with the EU to foster participation in global value chains.

The IMF team would like to thank the authorities and other interlocutors for the fruitful collaboration and kind hospitality.

Belgrade – The Regional Cooperation Council (RCC) hosted the panel: The Future of Regional Capital Markets as a partner of the 17th Conference of the Belgrade Stock Exchange ‘Upgrade in Belgrade 2018’ being held in Belgrade today.

Development and networking of capital markets in the region is part of the Berlin process which created a new momentum for cooperation in the Western Balkans in key economic areas: trade, investments, both direct and financial, mobility of workforce and digital integration of the region.

“The Berlin process aspires to facilitate free flow of goods, capital, skilled workforce and communications in the region, which is also the focus of the RCC’s activities in this process. Together with the region’s governments, we are working to negotiate the Mutual Recognition Agreement for professional qualifications in construction and health sectors, thus facilitating unhindered work for our experts throughout the region. Furthermore, we continue working on reducing the roaming charges to the benefit of all users of mobile telephony in the region, and we have adopted and are currently working on implementing reforms regarding harmonisation of investment legislation with that of the EU and promoting the region as a single economic destination. The idea behind this joint investment agenda is to improve doing business opportunities and attract more direct investment into the region; and in order to round up the investments, which include both direct and financial investments while facilitating access to finances, we provided a concrete proposal for cooperation of stock exchanges in the Western Balkans region,” said Goran Svilanovic, RCC Secretary General.

“To attract more investments, Western Balkans economies need to develop financial markets which can enable capital investments in private sector, not only by healthy banking sector but also through well-regulated exchange of securities, venture capital and alternative financial sources. It is also necessary to improve legislation on capital markets, in particular in the part related to protection of investors, and adopt regulations on managing alternative investment funds and other financial instruments, such as the laws related to factoring.”

Addressing the panel with Secretary General Svilanovic were also Ivan Steriev, CEO, Stock Exchange of The Former Yugoslav Republic of Macedonia; Gojko Maksimovic, CEO, Montenegro Stock Exchange; and Sinisa Krneta, CEO, Belgrade Stock Exchange.

In addition to reviewing the current macroeconomic trends and future of capital markets in the region, this year’s Conference focuses in particular on alternative investment approaches and possibilities of applying new technologies in this area. The 8th Regional Investors Conference is traditionally held alongside the Conference of the Belgrade Stock Exchange.

17th Belgrade Stock Exchange Conference gathers several hundreds of participants, including local and foreign investors, bankers, financial intermediaries, representatives of institutions, local and international companies, media, etc.

In response to economic issues and needs of the region, Regional Cooperation Council (RCC), together with governments in the region, is implementing Multi-annual Action Plan (MAP) on a Regional Economic Area (REA) in the Western Balkans. RCC is also tasked to regularly report about the progress made in MAP REA implementation to the region’s prime ministers at annual summits of Western Balkans leaders.

High growth in the first half of the year has improved the expectations of the World Bank about the Albanian economy for this year. According to the economic report for the Western Balkans, Albania, along with Kosovo, is expected to have the highest economic growth in the region for 2018, at 4%. In the World Bank analysis, economic growth was associated with job creation and encouragement of labor force participation.

However, the report also points out that half of the economic growth came from high production of electricity. The decline in the contribution of this sector, but also the closure of the TAP project, will have an impact on the economic growth rates for the coming years. In fact, the World Bank remains in the position that the growth of the Albanian economy will fall by mid-term to 3.5% by 2020.

To ensure a high long-term growth, the World Bank once again put emphasis on long-term reforms that increase human and physical capital, reduce barriers to labor force participation, and promote market competition. The report once again underscores that fiscal sustainability is a prerequisite for economic growth and requires focus on fiscal consolidation and the reduction of public debt.

In the context of budget management, the World Bank again sought to improve the quality of public spending, as well as improve the regulatory framework of concessions and public-private partnerships.

SCAN

Italy’s budget drama and Brexit have created an existential crisis for the European Union. But in the bond market, countries that pursue their dream of joining the bloc get rewarded.

Ascending to the world’s largest single market, and the potential for access to development funds, make it compelling for membership candidates to make sure they meet the entry requirements, which include limits on deficits and debt. The European Central Bank’s negative deposit rate and quantitative easing program tend to drag down borrowing costs for all EU members, regardless of whether they’ve adopted the common currency.

The direction of travel is key. This explains why the debt of some Western Balkan nations can be a relative haven for fixed-income investors, and Albania’s plan to issue debt next month for the first time in three years is well-timed. The EU has committed to have all of these countries become full members, but the timetable depends on each country’s progress toward meeting the entry requirements.

Compare that to the blowup in Italian yields since the populists took center stage in May.

European government bonds suffered a huge risk-off moment as investors took fright at the prospect of euroskeptics taking power in Rome, and the recovery has been somewhat mixed — Spain, Portugal and Greece show the fallout from May’s contagion to varying degrees.

Meanwhile, emerging nations vulnerable to pressure from a stronger dollar have continued to find life to be difficult. The turmoil in Turkey and Argentina doesn’t help.

So it’s somewhat remarkable that the debt securities of Albania, Macedonia and Montenegro, which are all rated around B+, are performing as well as they are. The gravitational pull of the European Union has proven itself to be a more powerful force than Italy’s political crisis.

Balkan Comparables

Spreads on new bond deals this year from Albania’s neighbors have tightened since launch

This should give Albania a lift in its plans to issue a new eurobond next month. It is one of Europe’s poorest nations, yet its relative economic weakness won’t be reflected in the low spreads it is likely to secure.

Demand should be healthy as it is only looking to raise up to 500 million euros. The proceeds will mostly be used to retire more expensive debt, including up to 200 million euros of a bond due in 2020 — a nice demonstration of the fiscal prudence that EU members are supposed to show.

The first wave of Eastern European countries to join the bloc are a good illustration.

What Crisis?

Italy’s political crisis did relatively little to stop Albania’s spread tightening.

As there is relatively little sovereign issuance from the region, funds will be keen to participate. Once the sale is complete, it’s pretty likely that it will be included in emerging market bond indexes — and that prospect will only add to demand.

It is logical for Albania to extend its debt maturities — it’s planning a five-year security — while at the same time reducing the overall cost of its debt. Its 2020 security has a 5.75 percent coupon, and now yields about 1.5 percent — in line with Montenegro’s 2020 bonds. Macedonia’s yield is about 1 percent.

Albania will issue at a longer maturity if the market demand is there, Bloomberg News reported. Given that both Macedonia and Montenegro have issued seven-year securities this year, Albania could well find enough interest to consider the same.

At that maturity, the spread on offer will likely be close to 280 basis points more than mid-swaps. Provided the broader market is pretty much unchanged by the time the issue comes, the yield would be about 3.4 percent — in line with the Montenegro seven-year. Compare that to the 5.2 percent yield for a seven-year Ivory Coast bond, or the 5.35 percent yield for a 10-year Senegal security, both of which are in euros.

The fate of the Balkan countries’ borrowing costs depends on whether they keep to the path for EU membership. Though Brexit and Italy could provoke a change in mood on enlargement, what’s more important is that these crises can unite the region against threats to the European project. That could go a long way toward overcoming any doubts member nations may have about the cost of taking new countries into the fold.

Source: Bloomberg

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