Bank of Albania: The macroeconomic setting was stable during 2014

On 1 April 2015 the Supervisory Council of the Bank of Albania, in its regular meeting, reviewed and approved the Financial Stability Report and the Financial Stability Statement, an integral part of the Report, for the second half of 2014. The Bank of Albania deems that in the second half of 2014, the situation and performance of the banking sector and of the financial system were stable. The volume of activity grew and the financial performance improved further.

The banking sector’s liquidity and capitalization ratios were adequate during the period and persist as such. The credit portfolio quality improved at the end of the year, although the level of non-performing loans continues to be high. Loan loss provisions and collateralization of non-performing loans stand at good levels.

The macroeconomic setting was stable, underlying the performance of the financial system. The improved economic growth and the fiscal and monetary policy actions were accompanied by good functioning of financial markets and downward financing costs.

However, risks facing the activity of the financial system and of the banking sector both from interaction with the internal and external surrounding economic environment, and the structure of its activity, remain present as proven by the stress-test exercise. Credit risk remains the main concern. In this regard, the Bank of Albania, together with the Government of Albania and in cooperation with the IMF will engage in the initiative for reviewing the process of non-performing loans management and resolution, in all its aspects, in order to find a long-term and sustainable solution. In this cooperation framework, the Bank of Albania will participate actively in the capacity of the supervisory authority and in the context of its relationship with the banking industry.

Banking sector’s exposure to other risks, such as market and liquidity risks, is assessed as limited, although the Bank of Albania requires banks to regularly assess such risks. Next, the Supervisory Council of the Bank of Albania reviewed and approved amendments to:

Regulation “On credit risk management by banks and branches of foreign banks”

The amendments were made with a view to repeal the use of credit risk mitigation techniques for provisioning purposes, given that such techniques are recognised by the authority and are comprehensively addressed in the provisions of the Regulation “On the capital adequacy ratio”. They will be used by banks for credit risk mitigation, in the context of calculating the size of exposures and capital needs, for credit risk monitoring.

Regulation “On minimum requirements for disclosure of information by banks and branches of foreign banks”

The amendments were made for the purpose of aligning the requirement of the authority on the disclosure of information by banks with the new requirements in the Regulation “On the capital adequacy ratio”, to enhance transparency and promote market discipline.

Encouragement of market discipline through constant compliance with requirements for disclosure of information allows market actors to assess the presented information on capital, financial performance, risk exposure, risk assessment and management, etc.

News source/photo credits: ATA