Interview with Mr. Seyhan Pencablıgil, Chief Executive Officer and Board Member of BKT
For Monitor Magazine, 25th of September 2023
How has BKT progressed during 2022 and the current part of 2023?
BKT has demonstrated robust growth, with a 21% growth in retail loans and a 13% rise in deposits. In 2022, we achieved a 19.1% return on equity in USD terms, a high measure of profitability, which is in line with our historical average.  The trend continues in 2023, with BKT poised for another successful year that mirrors the achievements of the previous year. The bank continues to maintain a leadership position in numerous areas, including asset size, deposits, digital initiatives, payment business, and mortgages. Another highlight is the consistent improvement in the non-performing loan portfolio, strengthening the bank’s balance sheet further. Our ongoing commitment to digitalization is paying off, with digital usage growing exponentially. However, it's worth noting that there remains a significant reliance on cash within the country.

What are the expectations for the following period and 2023? 

2023 has been a favorable year for the banking sector in terms of profitability. With the interest rate hikes, particularly in the Euro, loan margins have seen an upward trend. However, this has had a dampening effect on new loan demands. Customers, accustomed to extremely low interest rates, are finding it challenging to adapt to this new environment, which is impacting the banks' income statements and even the yields on investments. During these rate hikes, some customers may experience negative returns on investments like mutual funds. Additionally, there's a shift in the Lek deposit market dynamics. It's now influenced by the competition between deposit and  T-Bills/T-bonds, deviating from its typical behavior. Another anomaly observed is the heightened volatility in exchange rates. Banks, depending on their currency portfolio distribution (loans, deposits, assets, etc.), might report growth or contraction, even if all other figures remain unchanged. Digital transformation remains a priority for banks as they strive to stay relevant to customers whose expectations are rapidly evolving. Today's customers prefer real-time interactions over prolonged processes. And it's not just about local benchmarks anymore; they demand international standards. There's also an increasing collaborative spirit between the state and the banking sector, with both parties keen on enhancing services for citizens - a development that underscores a shared objective between public institutions and the banking system.

The Albanian economy has experienced several shocks such as the earthquake and then the price crisis. How have these phenomena affected the bank's performance and problematic loans?
Albanian economy has passed the all tests and showed flexibility to absorb financial difficulties. Following the earthquake, the state leveraged its resources to alleviate the financial impact, providing certain provisioning advantages and guarantees to the banking sector. Private banks collaborated with the government and Bank of Albania to ease the burden on customers, particularly businesses. This cooperative spirit was similarly evident during the austerity measures for Covid. In banking, we always prepare for the worst-case scenario to avoid unwelcome surprises, and this cautious approach has contributed to the sector's stability. Despite the interest rate hikes and a period of high inflation, the performance of the real sector and the trend in bad loans have remained almost stable. While BKT's figures have remained consistent, we notice a marginal uptick in the market figures concerning the non-performing loan portfolio.
How much of a problem has it become for you to find qualified labor and how are you solving (if you have) the problem of lack of personnel?

It is a new challange for Albania not only for banking sector for overall sectors demanding well educated skillful human capacity. Emigration, and particularly brain drain, is emerging as a significant concern for the banking industry. The aftermath of 2021, the post-Covid period, was particularly challenging due to a surge in migration demand that had been deferred for nearly a year. However, by 2022, the figures returned to more typical levels. To cultivate a skilled workforce, we've initiated collaborations with several universities. Partnerships with New York University (Applied Banking), Tirana University's Faculty of Science (Fintech Master), and the Faculty of Economy are primary efforts of the bank to ensure sustainable workforce management. Additionally, we are investing in upskilling our staff, enhancing their capabilities to fill positions internally when vacancies arise.
How have demographic changes (emigration, gradual aging of the population) affected the progress of the activity and how are they expected to affect them in the future?

While Albania has still a relatively young population compared to the Western world, emigration is negatively impacting our demographic metrics. In specific areas that require specialized expertise, maintaining a stable team has become increasingly challenging. Though the situation remains manageable for now, it's crucial that we take steps to make our country more appealing not only for our citizens but also for qualified foreigners, ensuring a foundation for sustainable growth.
What are some of the sectors you see with the most potential to lend in the future?
At BKT, our focus is primarily on retail and SME businesses. When it comes to lending to larger corporates, we are financing selectively, primarily considering significant infrastructure and energy projects.
Residential construction continues to grow rapidly. How effective do you consider the orientation of the Albanian economy model towards this sector and how exposed are the banks to a possible drop in real estate prices?

Over the past decade, we've consistently seen strong demand in the residential construction sector, with prices consistently trending upwards. Factors such as rising construction material costs and additional taxation/obligations have contributed to these price hikes. Initially, there was a concern about potential oversupply and stagnation within the construction industry. However, the surge in the tourism sector, especially post-Covid, has mitigated these concerns relatively. Particularly, there's significant demand for properties in coastal areas. The influx of foreign buyers can further fuel these price increases, potentially delaying any stabilization in pricing. However, it's worth noting that any unforeseen internal or external factors—like a pandemic, travel restrictions, or sanctions—could potentially offset this positive trajectory and it may create a negative domino effect.
What are some of your bank's plans for the future?
Sustainability remains our foremost priority. We are committed to a wise asset management strategy, ensuring high asset quality. By mitigating risks and diversifying our portfolio, we aim to avoid concentration and to minimize the fluctuations. Digitalization is a cornerstone of our sustainability strategy, we will improve all our services by the help of technology and we will also positioning ourselves as key players in the Fintech domain. Furthermore, we're actively exploring opportunities for international expansion. Our subsidiary in Kosovo, which is now the third largest and a very profitable bank, is proof that we can replicate our successful model in other countries.

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