On the other hand, the banking system continues to apply additional prudence with regard to lending, albeit it is under good liquidity and capital conditions. Financial markets are characterised by downward liquidity risk premiums. Interest rates in the inter-bank market fell even further in November, reflecting the ample liquidity and eased monetary conditions. In the primary market, government security yields continued to fall. Moreover, the interest rate on deposits and loans denominated in the Albanian lek were downward, in response to monetary policy signals. In the period ahead, a more comprehensive response of the real economy to the eased monetary conditions is expected. *** The Supervisory Council of the Bank of Albania deems that inflation will remain at low levels and close to the medium-term inflation target of the Bank of Albania. The performance of the domestic economy, global economy, and financial markets is not expected to generate any deviation from the 3.0% inflation target. Under these conditions and in the absence of unexpected shocks from the supply side, consumer prices will increase at low rates and will range within the target of the Bank of Albania. *** At the conclusion of discussions, the Supervisory Council decided to keep the key interest rate unchanged, at 4.00%. Keeping the key interest rate at minimum rates helps maintain the stimulating character of the monetary policy, thus enabling the real economy to take advantage of better lending terms in 2013. Furthermore, this policy contributes to keeping inflation expectations in control, by helping lower long-term interest rates.

In respect of the Mudharabah depositors, any adverse shock to the financial performance of the asset portfolio in the balance sheet will be directly transmitted to the liability side, resulting in an adverse impact on the returns to the investment depositors. Islamic financial institutions have a fiduciary accountability in ensuring that depositors’ funds are prudently managed and that the risk-adjusted returns on investments are maximized. The ability to maximize risk-adjusted returns on investments and sustain stable and competitive returns to depositors will contribute to promoting confidence in the Islamic financial industry. Leveraging on information technology As we forge ahead, successful financial institutions will be those that are able to exploit the full potential and opportunities that arise from the IT revolution. In embracing new leading edge technology, the potential for the Islamic financial industry to provide new products and services will be enhanced. It also represents the potential to increase access to financial products through a wider range of new delivery channels. Greater application of IT in the industry can also enhance efficiency by driving down costs for consumers and businesses. Other areas include leveraging on IT in making strategic decisions in the alignment of business, in elevating institutional capacity and operational efficiency and strengthening risk management capabilities. The advent of Basel II for conventional banking has compelled institutions to make strategic investments in technology and risk management systems to be equipped in making the required quantification of credit, market and operational risk.