BoA: The more banks, the stronger the economy

BoA: The more banks, the stronger the economy
The more banks a country has, the stronger is its stability and economy. This was the conclusion reached by the Bank of Albania in a report on the impact that competition has in the stability of the banking sector. According to this report, there’s a positive correlation between these two. “This is why a growth of competition in the banking sector, further improves the stability of the banking sector in Albania”, expert Gerti Shijaku says. In other words, although Albania has a relatively high number of banks compared to its population, 16 banks in total, this is a positive thing for the country’s economy.

Thanks to the high competition that exists between them, they offer better services and as a result, they manage to make considerable profits. “In other words, this means that the growth of competition in the banking sector encourages banks to be less exposed against risk. This result confirms the correlation that exists between stability and competition in Albania’s case”, BoA’s report states among others. Meanwhile, the report also says that the macro-economic conditions of a country are relatively important for the stability of the banks. “Results suggest that the improvement of the economic activity and the reduction of risks, lead to a growth of stability. Similarly, banking stability is also conditioned by the need to improve operating efficiency and banks’ capital structure”, banking experts explain. Meanwhile, they say that the competitiveness among banks is relatively decisive for their stability especially in periods of economic crisis for a country.

The number of banks operating in Albania is going down

So far, the number of banks operating in Albania has been considered high, but this number is declining. So, in the past few days, the Competition Body has authorized the sale of Veneto Bank to the other Italian bank, Intesa San Paolo, bringing the total number of banks down to 15. “The structure of the banking and financial system at the end of 2016 is made up of 16 banks, 28 nonbanking financial institutions, 428 bureau de change and 2 savings and credit unions”, the Bank of Albania says in its latest report for last year. Meanwhile, the report states that until the end of the year, banks operated through 493 branches or agencies throughout the territory of the country, while only one bank has a branch outside the territory of Albania. Meanwhile, as far as the geographical distribution of banking branches are concerned, the Central Bank reports that there is still a big concentration in Tirana, namely 42%, as Tirana also has the largest concentration of population with 30% of the total population of the country.

“The distribution of bank branches based on regions is in line with the population”, banking experts say. The report also says that the capital’s structure continues to be dominated by foreign capital, which at the end of last year, 2016, represented around 88.50% of paid capital of the banking system, with a fall of around 0.55% compared to the end of 2015. Turkish capital is the highest, followed by the Austrian, Italian, etc.

Weight of banks in the domestic economy is increasingly growing

“The weight of the banking system in the economy, expressed through the relationship between the total volume of its activities and GDP, continues to be high”. This is confirmed by experts of the Bank of Albania, who confirm that the banking sector plays a higher contribution in the country’s economy.  

“In 2017, this index has increased by 3.72%, reaching a level of 95.05%”, they explain. On the other hand, the added level of the impact of the banking system in the Albanian economy is shown, according to them, by the strengthening of its capital. “During 2016, the paid capital in the banking system has grown by 10.4 billion lek or 9.17% as opposed to a year ago”, experts explain. Then, they provide positive figures in relation to the growth in the volume of banking operations. “The growth in the volume of operations with the treasury and inter-banking operations is 3.8 billion lek or 3.9%.”, they confirm. Meanwhile, they add that commercial banks have increased the volume of their operations with the Central Bank by 5.8 billion lek or 3.9%. Experts also report a growth in the volume of transactions with customers by up to 57.5 billion lek or 5.2%.

 

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