Banking system supervision In early 2010, the Bank of Albania changed its banking supervision organisational framework, orienting and relating it directly to risks associated with the financial activity. In parallel, the Bank of Albania re-conceptualised its supervision focus and strategy in accordance with risks posed to Albania’s banking and financial system. Transparency and publication of information on banking and financial products and services were in focus of supervision in 2010. Encouraging enhancement of private financial agents’ transparency is also reflected in amendments made to regulatory framework during the year. 4  BIS central bankers’ speeches  High commission fees on banking products and services were a sensitive issue that was addressed over the past year and will constitute a priority in the upcoming period. The Bank of Albania, through its analyses, played a key role in discussions about this matter, aiming to tackle it timely and duly. Also, issues related to anti-money laundering, transparency and compliance with prudential regulations were an important part of the supervisory process in 2010. In view of strengthening the supervisory process on banking institutions, the Bank of Albania has signed a number of cooperation agreements with central banks in the region and with European ones, where parent banks have their headquarters. Strengthening the supervisory regulatory framework In 2010, the Bank of Albania finalised drafting of several new regulations and amended some other regulations on banking supervision. This process aimed at compliance with Basel Committee standards and EU Directives, taking into account international best practices and Albanian banking system developments.

Positive developments in the external sector of the economy, primarily owing to expansion of exports and foreign currency inflows from the Eurobond, contributed to the generation of contained pressures in the foreign exchange market. From the macroeconomic viewpoint,  2  BIS central bankers’ speeches  relative exchange rate stability during the year reflected a new equilibrium in foreign currency demand and supply. In sectorial terms, the Albanian economy development relied chiefly on growth of industry and services sectors, while construction sector continued to contract in 2010. Industry and services sectors benefited, to a great extent, respectively, from foreign demand and structural shift of the domestic demand to short-term consumption goods. In the short- and mid-term horizon, both sectors are expected to remain the main supporting pillars of the Albanian economy. Agriculture, the other important sector of the Albanian economy, marked a positive performance in 2010. Even so, based on the broader concentration of the country’s population and the great potential for development, the increase in this sector’s productivity remains a long-term priority. Money and financial markets Monetary developments in the past year were in line with the performance of the real sector of the economy, reflecting simultaneously the fully restored confidence in the financial system, improved supply and demand ratios in the financial markets and prudent liquidity management policy of the Bank of Albania. Expansion of monetary stock by 10.6% on average complied with the economy’s demand for money and did not trigger any inflationary tendencies in the economy.