The banking system remains prudential in selecting the projects it finances, as a consequence of deteriorated loan portfolio quality and uncertainties surrounding the future outlook. Banks continued to maintain tight lending standards, appearing rather selective in assessing the business plans and meeting the demand for loan. Overall, the Bank of Albania assesses that creating a positive climate assists in recovering lending and the demand for loan. The Albanian banking system remains well-capitalised, liquid and capable of meeting the economy’s needs for credit. However, within the parameters of financial prudence, it should be forward-looking about its decisions and more flexible in providing financial support to Albanian business. Financial markets were characterised by a downward interest rate trend over the third quarter, associated with low liquidity pressures and reflecting the Bank of Albania’s easing monetary policy. 2  BIS central bankers’ speeches  Increased interbank market activity suggests the increased efficiency in using this market and is a good premise for developing the overall monetary market in Albania. Over the period, the easing monetary policy signals in terms of lowering the government security yields were better transmitted. This transmission was favoured by completion of structural movements in the banking system and reduced government demand for funding. Deposit interest rates continued to fall as well, but as already reflected by the high deposit growth over this quarter, they did not restrain the increase in financial savings at the banking system. The easing of financial costs was not fully transmitted to the private sector credit segment during July-August.

Ardian Fullani: Overview of Albania’s latest economic and financial developments Speech by Mr Ardian Fullani, Governor of the Bank of Albania, on the Monetary Policy Decision-Making of the Bank of Albania’s Supervisory Council, Tirana, 31 October 2012 *  *  *  Today, on 31 October 2012, the Bank of Albania’s Supervisory Council reviewed and approved the quarterly Monetary Policy Report. Based on the analysis of Albania’s latest economic and monetary developments, and following discussions on their performance outlook, the Bank of Albania’s Supervisory Council decided to keep the key interest rate unchanged, at 4.0%. The Supervisory Council deems that the current monetary conditions are adequate to meet Bank of Albania’s inflation target in the medium term. Keeping the key interest rate at its minimum historical level ensures the necessary monetary incentive to promote Albania’s domestic demand and economic growth. Let me now proceed with an overview of the economic and monetary developments and key issues discussed at today’s meeting. *** The Albanian economy was faces with a challenging global environment over the first three quarters of 2012 due to difficult situation of the world economy, and particularly of the euro area. Domestically and externally generated supply shocks determined the economic growth profile and continued to test Albania’s macroeconomic and financial foundations. Over this period, the Albanian economy was faced with slow foreign demand growth, increased financial risk premia and tendencies of several financial market agents to reduce exposure to Albanian economy. These developments were also reflected in low consumption and investment levels.