Highlights on the recent economic and financial developments in Albania;  2. A retrospective view of the confrontation of our economy with the global crisis;  3. A package of measures we propose to revive lending to economy. Albanian economy during 2012 Year 2012 was a challenging one for Albania’s economic development. The Albanian economy recorded positive growth and its economic and financial balances were stable. Economic growth, however, has pursued a clear slowing path over the past four years and the concerns accounting for this performance remain present. As we have continuously stated, Albania’s economic activity suffers from lack of final demand for goods and services. Consumers and businesses, in particular, appear reluctant to consume and invest due to higher uncertainty and tighter lending standards. The lack of this demand is reflected in partial utilisation of productive capacities, yielding, in turn, low economic growth, a sluggish labour market, business financial constraints, and deteriorating loan quality. Although as at end-2012, non-performing loans rose to 22.5% as a percentage of total loans, the banking sector appears stable. Capitalisation and liquidity figures stand at good levels. Profit was distinctly better than in 2011. Loans and deposits grew higher than in 2011 but at a lower growth rate. The decelerating lending was particularly significant, growing by merely 2.1% in the past year. Only lending in Albanian lek provided a positive contribution, while lending in foreign currency shrank on a year earlier. Banks increased their prudence in lending, leading to a relatively tightening credit supply.

In parallel, this process should be treated at its roots, to establish a transparent and stable mechanism that addresses factors, which contribute to the increase of public sector liabilities toward private companies, and avoids their increase in the future. Furthermore, the Bank of Albania will amend the regulatory framework to urge banks to support borrowers’ request for credit restructuring, from the moment the credit is considered as good. If the banks realise this in an effective manner, they will have a lower cost as regards requirements for credit risk provisioning. This element would enable banks to address more prudently and proactively their best clients, who may be showing their first signs of credit repayment problems due to factors that are beyond their control. As an element to keep this action in check, the regulatory framework will envisage that this loan stay temporarily under this category (or in the substandard category), and will immediately fall in a lower category, if the loan quality deteriorates after restructuring. After broad consultations with the banks, the Bank of Albania has drafted the relevant instructions that will guide them in the debt restructuring process. BIS central bankers’ speeches  5  Similarly, the Bank of Albania finds that a part of the non-performing loans, mainly the loss loans, remain in the balance sheets of the banks owing to different interpretation by the banking industry and the tax authorities about the commencement and completion of the legal proceedings against a debtor.