1. Albanian Association of Banks Round Table 16 September 2015

2. Albanian Association of Banks Content I.Banking growth and impact to the economy II.Lending III.Profitability & Interest rates IV.NPLs and recovery challenges

3. Albanian Association of Banks Banking Sector – in the last decade Indicator20042005200620072008200920102011201220132014 No. of Banks 16 17 16 Total Assets (mio EUR) 3,375 4,0515,0726,1006,6906,4247,1898,0637,9848,5468,798 Assets in % of GDP 57% 60%69%76%81%75%81%85%89%91%92% Total Loans (mio EUR) 552 1,0421,5532,4013,2053,2613,5624,0364,1574,0424,232 Lending in % of GDP 9% 16%22%30%37%39%40%43% 41%42% Total deposits (mio EUR) 2,975 3,570 4,151 4,949 5,007 5,032 5,927 6,586 7,134 7,3107,624 Deposits in % of GDP 48% 51%57%62%60%59%63%70%73%74%75% Steady growth ….

4. Albanian Association of Banks …increased capital invested Indicator 2004200520062007200820092010201120122013201415-Jun Shareholders' equity in (mio EUR) 160203266343433577615671700730737792 Capital adequacy (%) 21.61916.217.117.216.215.415.616.21816.816 Compared to the region:

5. Albanian Association of Banks …continuous infrastructure improvement Indicator 200620072008200920102011201220132014 No. of Bank Outlets 292392517533559552556546526 Number of employees 4,2635,2066,3326,3846,4306,7106,8206,7096,825 No of Banks - internet banking 1461011 12 No of Banks - mobile banking 578

6. Albanian Association of Banks Lending in recent years

7. Albanian Association of Banks …compared to the region Total Loans (in BN EURO) & Annual Change (In %) 2008200920102011201220132014 Greece 198.0190.5251.3241.9221.8212.4206.8 ∆-3.8%32.0%-3.7%-8.3%-4.3% -2.6% Romania 54.047.550.153.151.249.848.0 ∆-12.2%5.5%6.1%-3.6%-2.7% -3.7% Bulgaria 24.725.625.926.727.5 25.3 ∆3.6%1.2%3.2%2.9%0.0% -8.2% Serbia 13.313.415.516.816.716.0 ∆0.6%15.8%8.4%-0.7%-4.2% -0.1% Bosnia & Herzegovina 7.47.27.47.88.28.48.6 ∆-3.2%3.5%5.3%4.1%3.0% 2.9% Albania 3.23.43.64.04.24.04.3 ∆5.3% 12.5%3.0%-2.7%5.2% Macedonia, FYR 2.72.83.03.33.53.74.1 ∆3.4%7.0%8.5%6.8%6.3% 9.9% Kosovo 1.21.31.51.71.8 1.9 ∆8.9%13.2%16.4%3.8%2.4% 4.2% Montenegro 0.90.70.50.3 0.40.3 ∆-30.2%-26.2%-30.1%-12.2%22.9% -12.6%

8. Albanian Association of Banks New loans & Recovery in 2015 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

9. Albanian Association of Banks Profitability

10. Albanian Association of Banks Lending interest rates-regional comparison Average lending interest rate, and spread between loans and deposits rates in domestic currency, as reported by IMF

11. Albanian Association of Banks NPLs – a regional issue NPL in % of total loans 2004200520062007200820092010201120122013 2014 Albania 4.22.33.13.46.610.514.018.822.523.5 22.8 Bosnia and Herzegovina 6.15.34.03.03.15.911.411.813.515.1 14.0 Croatia 7.56.25.24.84.97.711.112.313.815.4 16.7 Kosovo.. 5.85.77.48.5 8.2 Macedonia, FYR 17.015.011.27.56.78.99.09.510.110.9 10.8 Montenegro 5.25.32.93.27.213.521.015.517.618.4 17.2 Serbia 22.223.84.18.411.315.716.920.018.620.6 23.0

12. Albanian Association of Banks  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 Main Reasons for high NPLs

13. 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)

14. Albanian Association of Banks Thank you!