"The new Ziraat Bank will increase competition in the market" - Zefi: Citizens will benefit from new products and reduced interest rates
After years of consolidation, the banking market is now set to undergo significant changes with the Central Bank granting preliminary approval for the licensing of Ziraat Bank. Ziraat must also meet several other conditions before it can officially open to offer its products to Albanian citizens and businesses.
According to professor Altin Zefi, the introduction of a new actor into the market will further increase competition, which could translate into lower product prices, as in the case of interest rates.
"It can influence the increase in competition and force other banks to lower interest rates, offer new products to the borrower and also invest in new technologies, improve operations, reduce operational costs in order to increase efficiency. So, it can create direct benefits for citizens and small businesses by reducing borrowing costs," Zefi underlined.
Being a bank specialized in financing agriculture, upon entering the Albanian market, Ziraat Bank is expected to face several challenges related to the high level of informality in agriculture and the lack of collateral from farmers.
"Ziraat Bank must become familiar with the Albanian market and must adapt to the Albanian market, with the challenges, which may be structural challenges, challenges of informality, lack of mortgages for agricultural lands, the ability to leave collateral from farmers is at a low level and as such, they must adapt their products. Also, it should be taken into account that Ziraat Bank has announced that it will not focus only on agriculture, so we will see how it will operate, what percentage of its assets and its investment will go to agricultural development ," said the professor.
Zefi stated, among other things, that increasing financing and lending will promote long-term economic growth.
Full interview with Pedagogue Altin Zefi
“ The entry of a bank like Ziraat, after 19 years as you mentioned, can have important implications. According to the theory of competition, the addition of an important actor in the market, such as Ziraat Bank, can affect the increase in competition, can affect the prices of products such as interest rates, so it can create direct benefits for citizens and small businesses by reducing borrowing costs. It also has implications for the banking market. Given that such a bank with a very long experience, more than 100 years we can say in the banking market and especially with its impact on agriculture and agricultural financing, it can affect the increase in competition and force other banks to lower interest rates, offer new products for the borrower and also invest in new technologies, improve operations, reduce operational costs in order to increase efficiency. So, it can create a new dynamism. It can be a shock to the system, a Little friend, of course depending on the amount of investment that Ziraat Bank will offer and it could be positive for the Albanian economy.
This also certainly creates challenges, because it will force existing banks (a market that is already consolidated in Albania, but which has the potential to develop, still has unused capital with which to lend), may affect the reduction of profit margins, which may force banks to take unjustified risks in lending.
However, it is expected to have a positive impact on the economy in general. Of course, Albania is a country with a very low level of credit in the region, compared to the region, in terms of comparison with GDP, we are about 35% of credit in the economy, and agriculture in particular, one of the strategic sectors of Albania, occupies a very small percentage compared to the region.
Economic theory says that with the increase in finance, that is, with the increase in financing and new products from a bank specialized in this field, there can be direct and rapid benefits for the borrower, especially for families and small businesses in agriculture. Agriculture, as I mentioned earlier, is one of the strategic sectors, 18% of GDP, of Albania's Gross Domestic Product originates from agriculture and about 1/3 of the employees are employed in agriculture, so a very important sector for Albania, but with minimal financing, about 1.7% or below the level of 2% is disproportionate compared to all other countries. Being such an important sector, the increase in financing and new products that Ziraat can offer for the Albanian banking market and the Albanian economy, will promote economic growth, so the increase in financing and the increase in lending is directly related, according to many studies, to long-term economic growth.
However, this has its risks and challenges. Ziraat Bank needs to get to know the Albanian market and adapt to the Albanian market, with the challenges, which could be structural challenges, challenges of informality, lack of mortgages for agricultural lands, the ability to leave collateral from farmers is at a low level and as such, they need to adapt their products to the Albanian market. Also, it should be taken into account that Ziraat Bank has announced that it will not focus only on agriculture, so we will see how it will operate, what percentage of its assets and its investment will go to agricultural development, but that Albanian agriculture will be the one that will benefit the most. It will be an important benefit, because the level is already very low and Ziraat Bank’s specialization in agricultural investments will be an important factor for the development of this strategic sector for Albania.”
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