Ardian Fullani: Recent banking developments in Albania
Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the ceremony dedicated to the
launch of the autumn 2005 issue of the legal journal, Law in transition, online, published by, EBRD,
Rogner Hotel, Tirana, 18 October 2005.
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Dear participants,
It is a great pleasure for me to participate in this ceremony dedicated to the launch of the "Autumn
2005" issue of the legal journal "Law in transition, on-line". I believe this publication of the European
Bank for Reconstruction and Development shall gather the best experts in the area of law and finance
in the country, who shall find in it an alternative source of consultation and expertise, for crucial
projects interweaving their professions.
Banks do represent the main institutions of our financial system. The total volume of their activity
constitutes around 50 percent of the Gross Domestic Product (GDP) in the country. Currently, 16
banks are operating, the capital of which is owned by private and institutional, domestic and foreign
shareholders. Market competition has overwhelmingly strengthened and the service quality provided
to the public has significantly improved. The banking network has extended to the most part of the
territory and developments in this respect are still robust. The role of the banking system as a
developer to the economy is mainly displayed in the increase of crediting to the economy. Its
increasing pace, especially in the last 15 months is remarkable. At the end of June 2005, loans
constituted around 21 percent of the total assets in the banking system, compared to 14.5 percent at
the end of 2004 and 12.5 percent at the end of 2003. Moreover, the deposits volume in the banking
system has increased, representing the main source of growth in the banking system activity. Banks
also serve as significant employment institutions. Only during 2004 their personnel increased by 26
percent and this figure is expected to be even higher at the end of 2005. The banking system
continues to represent a profitable investment sector.
These developments further indicate the vital importance of the banking sector to one's country
economy. It is essential that the banking sector activity be supervised cautiously in order to ensure
sound and safe banking practices, transparent and clear set of rules, fair competition and stable and
sound institutions. It is our duty, as a supervisory authority in the country, and other governmental
institutions, as well, which control part of the banking system activity, to care and provide favourable
development conditions.
The Bank of Albania is the supervisory authority of the banking system and of some other institutions
performing financial activities. The role of the Bank of Albania as a supervisory authority is provided
for by the Law No. 8269, dated December 23, 1997. The licensing, organization and functioning
approaches of banks, their obligations to the shareholders, the public and the supervisory authority,
are broadly stipulated in the Law No. 8365, dated July 07, 1998 "On the Banks in the Republic of
Albania". These two laws were approved during '97-'98, shortly after the country's emergence from a
crisis with tremendous consequences to the its social and economical life. Accordingly, the
established laws aimed at setting up a robust supervisory authority of the banking system, and
ensuring the protection of the banking activity from other illegal forms of financial intermediation.
Further, other laws of particular significance to the banking system were approved, where I could
mention the Law "On Deposit Insurance" (2002), Law "On the Prevention of Money Laundering"
(2003) and the Law "On Accounting".
The Law "On the Bank of Albania" and "On Banks in the Republic of Albania" have been followed by a
number of regulations and instructions established pursuant to their implementation by the Bank of
Albania. These sub-legal acts have aimed at resolving the law principles, mainly in the operational and
banking supervision area. In this way, several regulations bearing the same purpose have been
established, such as, the Regulation "On the licensing of entities performing banking activities", "On
capital adequacy", "On regulatory capital", "On required reserve", "On bank related persons", "On
credit risk administration", "On the prevention of money laundering", "On the approval of bank
administrators" etc. We believe that the regulative framework on the whole, has so far satisfactorily
provided the progress of banking activity and it serves as a solid foundation to upcoming
developments.
Let me focus deeper on this issue:
A regulative framework is considered to be good, provided that it does not contain a static concept of
the issues it regulates; that is, a regulative framework established not only as an outcome of the
instant needs, but bearing the ability to provide the law entities with the necessary principles for a
sustainable and controlled activity development even in the foreseeable future. At the same time, the
regulative framework needs to be unambiguous and applicable. This could be attained if its
requirements also take into considerations the concerns that its subjects might have, through a wide
and formal communication and discussion process. The regulative framework, at any area of the
economic activity and beyond, must also consider our country's objectives relating to the integration
into the European family, since in this way the integration process shall be easier, more natural and
quicker. With respect to the banking area, the regulative framework must aim at determining and
implementing similar requirements as stipulated in the European Directives or in the publications or
various organisms operating under the framework of European institutions, relating to principles and
standards in this matter.
The main laws, which have determined the development of the banking activity, for the time when they
were established, have performed their function at their best, but we believe it is the proper time when
their revision has become necessary. I could mention here the Law "On Banks in the Republic of
Albania", the revision of which is under process by the Bank of Albania. Currently, the project is in its
final phase of clarity and soon discussion with the banking industry and other significant institutions is
about to begin. The prepared project uses the requirements basis of the existing law, but at the same
time it provides a few changes which aim at addressing some issues emerging from banking and
supervisory practice to date, as well as the best approach to the international standards in the banking
area. More concretely, the requirements regarding banks' activity with respect to their capital have
been made more precise; banks' activities with the related persons have been reviewed; the
managing structures of banks and their obligations have been determined in a clearer way; the
requirements concerning the transparency of the banking activity have been re-enforced;
requirements regarding the consolidated supervision have been provided; corrective measures and
penalties have been clarified; the requirements and definitions concerning the taking of the bank under
administration or leading it to liquidation have also become clear; the relationship with the Deposit
Insurance Agency has been provided; a specific chapter dedicated to the consumer protection in the
banking activity has also been provided, etc. At the same time, some of the essential regulations,
mainly those related to the regulative capital and capital adequacy are being assessed in order to
introduce in them some elements of new standards defined in the new Accord of the Basel
Committee, also known as Basel II. In particular, banks' activities with its related persons have been
reassessed in the context of defining the relationships leading to conflict of interest between the bank
administrators, employees and shareholders and the function, the duty and the role they have with
regard to the bank.
One of the main directions of the banking activity is crediting. Its regulation and supervision approach
bears a special significance considering that this activity is being rapidly expanded, both in form and
volume. Specific aspects of this activity have been treated separately, one by one, under the
framework of a special Regulation of the Bank of Albania. A remaining crucial issue is the execution of
the collateral (in particular, the one related to mortgage), in the conditions when the borrower presents
problems relating to the credit settlement. With regard to this issue, we think that the proposals
deriving from the banking industry concerning suggestions on some amendments in the Civil
Procedure Code, aiming at making the complaining procedures and time procedures of the asset
auction shorter, the asset dealing during the sequestration, etc, need to be taken into consideration. It
is also necessary to begin the work on drafting the Law "On the Auction Procedures", provided for by
the Article 573, paragraph 4 of the Civil Procedure Code, as well as make the respective amendments
in the Law "On the Registration of Real Estate" and the respective regulative framework. These
measures shall have positive effects over the progress of the crediting activity serving as a better
support to the economic growth in the country. We aim at having an executing title, which is really
executable.
Another law calling for a greater attention from the authorities to assess its applicability is the Law "On
the Prevention of Money Laundering". Undoubtedly, the reputation of the banking system, the obstacle
of the economic development through the deviation of sources from the legal activities, the obstruction
of necessary investments and the fiscal policy sabotage, the criminal activity which violates the human
life and freedom, are some of the consequences that the money laundering and the financing of
terrorism brings, which very often could be carried out on the grounds of a banking system. But, I have
to emphasize that under the conditions of our country where the informal economy is quite
considerable and where information technology infrastructure in the data processing and analysis
collected on the purpose of money laundering prevention is insufficient, a new approach needs to be
adopted; an approach which would focus the authorities' efforts on combating the phenomenon
according to the risk profile of different sectors and certain social groups that are considered as more
vulnerable to the phenomenon. For this reason, we think that more attention must be paid to other
sectors in the economy, where there is a need for a greater and more coordinated imposition of the
law requirements. Moreover, according to the Bank of Albania, and other foreign experts as well who
have been working with us, and other specialists from the state institutions being engaged in the field
of money laundry prevention, the actual law needs to be revised because it causes premises for
significant formalism, especially in the activities related to the reporting of transactions and the
identification of doubtful transactions. Being a member of the working group led by the International
Monetary Fund experts, the Bank of Albania has contributed to the drafting of a new project of this
law.
At the same time, the Bank of Albania is working on the adaptation of a regulative framework related
to the financial activity performed by non-bank financial institutions. There is room for further
improvement in the expansion and extension of the regulative requirements and the improvement in
the existing framework concerning the supervisory practice and their activity report. In this context, the
reporting system of these institutions activity has been approved, along with it a regulation on the
activity of savings and credit associations and their unions has also been approved. Regarding these
latter, the Bank of Albania is working on the establishment of the accounting manual and the
inspection manual.
In February-March during this year, our financial system was subject to an assessment process
organized by the World Bank and the International Monetary Fund. In the final report, sent to the
Albanian Government and the supervisory authorities in the country, several issues were identified
which involve the need of changes in the regulative framework. Many of these elements related to the
Bank of Albania activity and the entities licensed and supervised by it, are part of the changes in the
aforementioned regulative projects.
In conclusion, I would like to stress once again the commitment of the Bank of Albania in granting its
greatest contribution to the improvement of the regulative framework, related to both banking and
financial system. I believe that in pursuing our objective in approaching our legal and regulative
framework in the financial area to the best standards, this journal issue that we are promoting today
shall serve at its best. I wish it success!
Thank you!