The revision of the 2003 banking law through the Ordinance on Money and Credit of August 2010 extended the missions of the central bank to include an explicit objective of financial stability in addition to the price stability mandate. The 2010 banking law emphasized the role of the Bank of Algeria in ensuring banking system stability, safety and soundness. In this regard, it has been endowed with larger prerogatives to carry out any investigation at the level of banks or financial institutions, thereby enabling greater capacity for early detection of vulnerabilities in the system. Accordingly, the Bank of Algeria intensified micro-prudential controls, including with regard banks’ anti money laundering and financing of terrorism mechanisms. Improved efficiency of these controls enables an orderly development of the banking system. For a comprehensive monitoring of the banking sector stability, the Bank of Algeria periodically assesses its  BIS central bankers’ speeches  3  soundness, based on stress tests which have been developed since 2007 and strengthened in 2013–2014. In addition, existing micro-prudential regulation tools – such as loan to value ratios, minimum reserve requirement (also a monetary policy instrument), and the ratio of debt service to revenue – have been revisited and could be adjusted as needed to face potential systemic risks. Furthermore, a strengthening of macro-prudential tools is underway since early 2013, especially through the introduction of new tools enabling horizontal analysis of risks and the introduction of resilience tests.

These 2  BIS central bankers’ speeches  measures have substantially contributed to increasing the share of credit to the private sector in total credit, which rose by 24 percentage points (from 31.3% to 55.3%) over the last decade. As a non-bank source of investment financing, financial market financing- mainly bond issuance – has significantly increased since 2002 in response to new financing needs related to private and public enterprises investment programs. As a percentage of nonhydrocarbon GDP, the financing of public and private enterprises through bond issuance reached 3.5% in 2006, up from 1.5% in 2004. 2. Macroeconomic stability and recent strengthening of the financial stability framework  The return to macroeconomic stability in 2000 and the financial performance achieved between 2001 and 2008, allowed the domestic economy to weather the global crisis well. In particular, sustained accumulation of foreign reserves between 2000 and 2008 and early repayment of the external public debt in the mid-2000s put Algeria in a position of net creditor vis-à-vis the rest of the world. Its net external position reached 91% of GDP in 2013, in a context of continued prudent management of foreign reserves by the Bank of Algeria. This external financial stability is supported by Bank of Algeria’s active exchange rate management through its interventions in the interbank foreign exchange market aiming at stabilizing the real effective exchange rate of the dinar close to its medium term equilibrium level. In the first half of 2014, real effective exchange rate slightly appreciated, in a context of disinflation.