This is the best form to test the real possibilities, which may later be supported by amendments to prudential regulatory framework. Our common goal is to stop progression of the value of nonperforming loans and improve the situation gradually. Some banks, thanks to their prudent and steady efforts over the past three years in relations with their clients, have managed to significantly reduce the non-performing loans share. They have continued lending to the economy at good levels. Organisation and management of their work is an example for other banks. The current legal and regulatory framework is comprehensive and in line with the best international standards, although it may require ongoing improvement. Our consolidated opinion, however, is that all the stakeholders need to exhaust all the available tools and gradually make further steps in the legal and institutional framework. More specifically, the banking industry and the business community need to work more closely. I believe there is more space for better understanding and more fruitful cooperation. The business community and the banking system should leave their trenches and cooperate in concrete terms to face future challenges. The banking system is ready to increase its support to the economy with loans. This was confirmed to me in a meeting I had with the management of the largest five banks. Personally, I urged the banking system for a more active approach to lending. This is a real challenge and many institutions and groups of interest are involved in it.

Further development of the inter-bank market was another important component of the project, given its significance in enhancing the monetary policy transmission mechanism to the economy. The supervision philosophy started to change in January 2010 with the establishment of a new dynamic structure oriented towards risk identification and management. Therefore, in addition to human resources capacity building for its eventual application, best European standards had to be identified and acquired in detail. The precious experience of the Bank of Italy, one of the most prestigious institutions in Europe, helped the Albanian supervision process conform to the best European models. I would like now to highlight several key developments: First, we have migrated from the actual CAMELS evaluation system towards another evaluation model based on a wider spectrum of individual risks, as envisaged in Basel II and Basel III standards. That was the most intensive process of this project, which required maximum engagement of Bank of Albania’s experts throughout these 18 months. Eventually, we produced a new supervision manual with European principles and methodology, broken down by risks and individual evaluation systems. Bank evaluation improved as qualitative criteria were taken into account in addition to quantitative data. Second, the Regulation “On capital adequacy ratio” has been revised in accordance with the BASEL II and Capital Adequacy Directive. The revision is followed by introduction of the standard method for credit and market risks and the simple and standard method for operational risk. Given its significance, the draft-text of the Regulation is being consulted with the banking industry.