Macro-Prudential SupervisionLessons learned from the

crisis

Hilda Shijaku Financial Stability Department

Albanian Banking System

Banks operating in the market: 14 banks 2 branches of foreign banks

Activity: universal banking.

Major operations: Deposits Loans Placements Treasury Bills & Government bonds Other foreign securities

Albanian Banking System

Proprietorship:Foreign capital – strongly prevailingDomestic capital – slightly taking

over

Albanian Banking System

0%10%20%30%40%50%60%70%80%90%

100%

Others

European Union

US A

A lbanian PrivateCapitalA lbanian S tate Capital

Albanian Banking System

Presence of foreign banks: Helped building of the entire system

Know-how brought in the country

Widely spread banking services (geographically)

New products offered

Supported the economic growth

Basel II

Not fully implemented

Pillar I – not implemented Presently working on the implementation of

Standardized Approach

Pillar II – partially implemented. No regulatory framework in place. Actions taken in conform to the supervisory

principles

Pillar III – Partially implemented There is a regulatory framework in place for

publication of information

Lessons learned from the crisis

Crisis imported First impact – confidence of the public Second impact – real economy

Impact on banking system Deposit withdrawal Liquidity drainage Decreased lending Increased NPL

Impact on economy

Effects on banks balance sheets

Initial state Dep withdrawal

How much dependent on mother banks?? Stress tests Information and risk management systems not in

place New regulation on liquidity management

Credit growth Npl change in structure

But only gradual Capital adequacy

FSI

Dec_06 Dec_07 Mar_08 Jun_08 Sep_08 Dec_08 Mar_09 June_09 Sep_09 Dec_09 Mar_10CAR (Reg capital) 18.1 17.1 17.2 17.3 17.5 17.2 17.1 16.9 16.7 16.2 16.1 RC to total assets 6.2 7.0 7.3 7.5 8.0 8.3 8.6 9.2 9.3 9.2 9.1 NPL to RC 6.8 10.1 11.3 13.9 11.4 21.7 22.0 24.6 25.9 28.2 31.6 (ROE) 20.2 20.7 16.3 16.6 16.3 11.4 1.5 1.8 1.8 4.6 7.3 Liquid assets over total assets 57.6 49.8 48.9 47.0 45.9 42.8 41.3 40.9 41.3 27.6 27.9 Liquid assets over current liabilities 69.5 74.0 71.4 66.2 68.4 64.9 57.1 56.8 63.9 32.6 33.1 (ROA) 1.4 1.6 1.3 1.3 1.3 0.9 0.1 0.2 0.2 0.4 0.7 NPL ratio 3.1 3.4 3.9 4.3 4.1 6.6 7.6 8.7 9.7 10.5 11.7 Deposits to loans 265.5 215.5 200.4 187.7 183.9 162.6 151.9 151.7 153.7 154.3 157.7 FC loans to total loans 71.9 72.5 73.1 73.1 73.7 72.6 72.2 70.8 70.0 70.2 70.4 FC liabilities to total liabilities 44.0 46.9 47.8 48.1 50.2 48.5 49.7 47.5 48.3 48.9 49.3 Loans to total assets 31.7 39.4 40.7 43.0 44.1 47.6 50.0 50.7 50.6 50.8 50.2

The authorities response

Formal Measures taken Liquidity provided to banks through the use of reserve

requirement (from 20% to 40%) Limited exposure to banks’ related parties (from 20% to 10 %) SC decision to stop dividend distribution of the 2008 and 2009

profit Decrease of the monetary policy rate ( 1% in January and October) Change in the auction form (BoA providing liquidity at a fixed rate) Increased deposit insurance coverage

Requirements Improvement of risk management practices Decisions based on prior analysis and stress-testing Maintain good level of capital adequacy at any time Continue lending policy to avoid pro-cyclical effects Smooth the impact on exchange rate regime

Lessons learned from the crisis

Evidenced weaknesses

Loose credit requirements in good times

risk management practices, structures & policy partially implemented

High exposure to foreign currency lending

Poor attention to macro developments

Lessons learned from the crisis

Strength

High liquidity

Good capitalization

Low exposure to foreign markets

Good support from mother banks