'Completely Focused' on Boosting Small-Business Lending in Albania
Georgios Papanastasiou is the CEO of Alpha Bank Albania (ABA), a subsidiary of Greece’s Alpha Bank Group. In July, MIGA backed investments in ABA that are helping support the amount the bank can lend to its customers, the majority of which are small- and medium-sized enterprises (SMEs). ABA is among the largest lenders in Albania with a network of 34 branches, almost 293,000 customers and 418 employees. Like almost every country, Albania is struggling with the COVID-19 pandemic. With MIGA’s help, ABA aims to support its portfolio and maintain loans to SMEs that form the bedrock of the Albanian economy.
Papanastasiou spoke with MIGA about the project, ABA’s outlook on SMEs and how the pandemic has affected his business.
Supporting small-business growth during this crisis is a critical focus of this project. What’s the outlook for these companies in Alpha Bank’s portfolio?
MSMEs account for approximately 12 percent of our total loans. There are uncertainties due to the pandemic, but we remain completely focused on increasing our SME portfolio. We believe that, with our experience in the market, we have the capacity and discretion to support and attract new customers, and that we can play an active role as far as small-business financing in the country is concerned.
Any challenges you see for achieving this growth?
There are challenges in Albania that need to be overcome apart from the challenges of the pandemic. The main issue is the small size of the economy. We're talking about a country of approximately 2.8 million people, with a GDP of around US$11 billion. And it’s concentrated in certain sectors like manufacturing, cement, construction and agriculture.
We are selective with SMEs, like we are with any client, but many SMEs are not prepared to share the necessary financial reporting banks require. Often, we must supplement their information with additional credit assessments. Much of the economy in Albania is informal, meaning it’s not properly documented. For example, property ownership and land titles in some regions are informal, so you can’t assess the value of your collateral. That’s tough for a banker.
How does MIGA’s coverage help?
MIGA’s support will definitely help us keep growing. It does so by protecting ABA against the risk that our reserves are expropriated by the Albanian Central Bank. There is a low risk of that, but banking regulations require us to keep them there, and without MIGA’s backing, we wouldn’t be able to lend against them. The risk weighting on those reserves dropped from 100 percent to zero, thanks to MIGA. This leads the way to support future market development and new economic opportunities as they come.
So far has the pandemic impacted Alpha Bank’s portfolio in Albania?
Well, there hasn’t been a significant impact in terms of the quality of our portfolio. In 2018-2019 our Non-Performing loan ratio was below 5 percent, while the market average is around 8 percent. ABA has been doing business in Albania for more than 22 years, so we know how the market is driven, what sectors are progressing, and which companies are moving in the right direction. Looking at cash-flow projections for this year and next we have not seen significant deterioration yet. Of course, it’s premature to conclude anything. Albania’s economy reopened just recently, and it is unclear how things will progress. To be prudent, we have split the portfolio into high-, moderate, and low-risk segments. We try to differentiate and avoid high concentration in sectors that in the past had not been performing as well as we would like.
Do you have a sense of the long-term impact or fallout from the pandemic in Albania?
It’s early yet, but time will tell. To its credit, the Albanian government was quite fast in its response. It took several actions quite early in order to support the economy. There was a fast government response that locked down key parts of economic life, such as mobility of citizens and business operations. Many of the companies either discontinued operations or operated at a minimal capacity.
To help workers, the government distributed a minimum salary, and also issued two sovereign guarantees and distributed them among the banks in order to either postpone loan payments, or support payroll for employment to be maintained. So, this has been really positive.
In the long term, I recently read the World Bank is estimating a 5 percent recession in the country. I think the question is whether we will be in a V shape or in a U shape recovery, but we are far from being in a position in order to say how things will develop.