EBRD helps protect savings in Albania

By Lucia Sconosciuto


The EBRD is assisting the Albanian Deposit Insurance Agency (ADIA) to strengthen the stability of Albania’s banking system with a €100 million stand-by credit line.

A  €100 million stand-by credit line from the EBRD is helping the Albanian Deposit Insurance Agency (ADIA) to give its depositors extra peace of mind by improving its coverage.  After all, when handing over one’s money to others, trust is essential.

 

Video: Albania: Protecting People's Savings

The EBRD is supporting Albania's Deposit Insurance Agency, growing trust in the country's financial sector.

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“The insurance is mandatory for every bank operating in our country,” explained Toni Gogu, ADIA’s General Director.  “It offers limited indemnity of personal deposits if any bank faces difficulties.  We are helping to increase the public’s trust in Albania’s financial system.”

Moreover, a technical cooperation project funded by Luxembourg has helped ADIA develop an automated system for payments in case of compensation to avoid any delay or possible human errors.

In Albania, building savers’ confidence in financial institutions took some time. At the beginning, after the fall of Communism in 1992, this was simply because a banking system based on market principles was a novelty.

The first foreign-owned bank opened a year later and laws and regulations such as the independence of the central bank were adopted a few years after that.

During this initial transition period, several private investors offered a seemingly attractive alternative to banks with the promise of large gains in a short amount of time (up to 19 per cent interest rates a month).

When, in 1997, these investments turned out to be pyramid schemes – void of any value – as many as two thirds of Albanians lost all their savings, a total of US$ 1.2 billion. The impact was dramatic; it led the country to the verge of a civil war.

“My family and almost everyone were affected,” recalled Anduela Lance, today owner of a small hairdresser salon and, like most victims of the crash, one with a vivid memory of the period.  “We lost everything so we had to start all over again. Those were harsh times.”

Recovering from the crisis, which choked off the transition process and the emerging private sector, was a matter of priority. In the immediate aftermath, the EBRD stepped in by supporting small and medium-sized enterprises with direct credit lines through local financial intermediaries and with equity financing.

Meanwhile, better laws to strengthen prudential regulations, improve supervisory powers of the central bank and to prevent any recurrence of the pyramid schemes were put in place. ADIA is one of the institutions established in 2002 to guarantee more security for people’s savings.

Indeed, assurance seems restored. Although, according to an EBRD analysis, overall financial intermediation in Albania is low by regional standards, a survey carried out in 2010 showed that Albanians’ trust in the financial institution has held up well in the economic crisis, with almost 60 per cent of respondents vouching for banks and the financial system.

With their money literally ‘in the vault’, savers like Ms Lance are expecting to be able to plan for a more secure future while the EBRD continues to be a reliable partner for Albanian financial institutions and supports their development.