ardian fullani : a summary analysis of domestic economic developments and the banking sector situation speech by mr ardian fullani, governor of the bank of albania, at the regional meeting, shkodra, 20 january 2011. * * * ladies and gentlemen, the bank of albania considers its communication with the public a key element to an effective communication of its decision - making. to serve this purpose, it makes use of all forms and types of communication. however, direct contact with the people provides us with a real perception and interpretation of their position and expectations and supports a more effective decision - making process. therefore, i am pleased to be again in your city, the centre of a region of well - known intellectual, cultural and patriotic heritage, which also gives a significant contribution to the country ’ s gross economic product. i would like, to start this direct communication with you with a summary analysis of domestic economic developments and, after that, dwell in more details on a number of concrete issues that affect the strength of relations between families and businesses on one side, and the financial system and banking sector on the other. during 2010, the albanian economy is expected to have recorded a satisfactory growth. for the third quarter, annual economic growth is estimated at 4. 9 per cent. the economic growth rate has been stable for the last two years, thus proving a good level of resistance to the effects of the international economic crisis. other macroeconomic indicators have ranged within acceptable and expected levels. it is worth mentioning that this macroeconomic stability is a reflection of the successful combination of key economic policies, that is to say, monetary and fiscal policies, during last year. more specifically, the fiscal policy aimed and succeeded to realise the necessary consolidation process following a fiscal expansion that accompanied economic developments in 2009. fiscal consolidation was accomplished through better control over public expenditures and collection of revenues close to foreseen levels. the exchange rate for the national currency, regardless of its underpricing in 2009, less so in 2010, has been much more stable than currencies of other countries in south eastern europe, which apply a free flexible exchange rate policy. a gradual under - pricing of the albanian lek is deemed to have had a positive affect on the reduction of trade and current account deficits through establishing a more favourable dynamic for our economy ’ s exports and imports. eventually, it is fully proven that the adoption of a flexible exchange rate regime has been one of the most outstanding choices of economic and financial policies over the past

two important developments namely, a substantial improvement of the liquidity situation and a falling tendency of interest rates for bank loans in lek. the first signs of a more positive trend were noticed during the last two months of 2010, with the annual crediting pace significantly accelerated. on the other hand, loan quality remains problematic, although a gradual improvement is expected during the current year. i take this opportunity to reiterate our call on banks to be more active in handling problematic loans and their collection. concerning loans considered not to have any hope of collection, in conformity with the legal and regulatory framework, banks need to take actions for the execution of collateral. in this process, there is a need for further legal improvements in order to reduce the risk of banks in crediting as well as costs for the client. this process is indispensable to clean bank balances from investments that are burdensome and release funds that would be used for new credits. in this context, monitoring of loan quality and behaviour or difficulties that banks face in this process lays at the very centre of the supervisory activity. second area concerns the cost of banking services for clients. on this issue, the bank of albania has conducted necessary analysis, which led to the conclusion that costs for a number of bank products and services, including payments and transfers, debit and credit cards, as well as some other forms of crediting, could be lower. in relation to this issue, we are focused on two aspects : first, promoting transparency in the banking sector on its relations with the clients regarding these services. for this issue, we have implemented requirements for the establishment of methodologies to determine effective crediting costs and clearly define contractual obligations vis - a - vis the clients. banks are asked to provide all the information and explanations to the interested clients. in addition, following the same logic, we would ask from banks to establish methodologies to define their costs for bank services, mainly related to payments and transfers. bis central bankers ’ speeches therefore, it will be easier for clients to compare between a variety of offers by banking institutions and, hence, be able to make their choice according to the most favourable alternative. for this to happen in the best possible way, customers themselves need to pay due attention and obtain accurate information on bank products and services. when necessary in this process, more specialised external expertise may be requested. secondly, bank of albania aims to offer a concrete incentive in this process for commercial banks, by further reducing their costs for