ardian fullani : albania ’ s long - term sustainable economic growth speech by mr ardian fullani, governor of the bank of albania, at the meeting with prime minister of the republic of albania and albanian bankers association, tirana, 20 march 2006. * * * honoured mr. prime minister, honoured bankers, i believe the purpose of today ’ s meeting has to do with a major problem, that of long - term sustainable economic growth of the country. all actors present in this meeting play a key role in this direction ; therefore i think that such meetings are useful, with significant contributions to the country ’ s economic activity. first of all, i would like to underline that during 2005 the albanian economy had positive developments in the following directions : monetary policy, standing neutral for most of the year, has ensured a constant money supply to the economy, in accordance with the needs for the country ’ s economic development ; inflationary pressures remained under control, under the conditions of a more steady exchange rate stability ; at year end, monetary conditions reflected extension of the economy financing by lending, while bank of albania foreign reserves were further increased ; banking system increased considerably its financial support to the economy in the form of banking loans. credit portfolio was increased by 74 percent or all 52 billion in absolute value. at end of the year, outstanding credit recorded 14, 6 percent of gdp, from 8. 4 percent in 2004. also the short - term program for the country ’ s economic development over 2006 has forecasted a further growth of the outstanding credit to 50 percent, implying further incentives for the country ’ s economic activity. this has made domestic business have more guarantees to invest in the economy, simultaneously inviting foreign investors for more foreign direct investments in albania. as the governor of the bank of albania, i must share with you a natural concern that is generally related to credit portfolio quality, particularly when we are faced with such a rapid expansion of the volume of lending. even though the outstanding credit to the economy is still low, about 15 percent of the gdp, its expansion over 2006 similar to that of the previous year, would increase the potential of banks ’ s exposure to credit portfolio quality risks. therefore, the banking system should undertake all the measures to improve monitoring, analysing, and controlling capacities, aiming at preventing any possible credit portfolio deterioration. on the other hand, we will enhance our supervising capacities, particularly the on - site examinations, by working out plans of measures to prudentially control each

time and again that we will satisfy all the financial market liquidity needs, but on the other hand we require from you to be more independent from your headquarters, in the policies you apply with relation to domestic financial market, in terms of investments portfolio. you are licensed and operating in albania, therefore, you have under your management the albanian citizens ’ savings and the essential task of every banking system is the financial intermediation in the country they are operating. the bank of albania will insist for the fastest implementation of repurchase agreements in the transactions you carry out in the interbank market. the bank of albania makes use of a systematic approach in its dealing with and operating in the interbank market, which necessarily requires an efficient liquidity re - allocation among banks. such a thing is carried out by applying repurchase agreement, thus preventing credit risk. in the meantime, the bank of albania is completing the regulation on dvp ( delivery versus payment ), which will simultaneously bring about even the settlement risk prevention. this constitutes another step in terms of financial infrastructure improvement for an efficient banking market. • • 4. the bank of albania is also looking into some other measures to better precede the optimal functioning of the banking system. under more concrete terms, the bank of albania will require that the dividends materialised over 2008 be destined to increase the capital of banks you manage. i have constantly pointed out that our system is well - capitalised, but however under current conditions i regard its further increase as a prudential measure. 5. one of the strategic goals for the central bank ’ s objectives is the strengthening of its institutional independence and credibility, being a central and accountable institution for the mission entitled by law. one of the factors impacting directly and indirectly on the strengthening of this independence is also the fulfilment and improvement of the bank of albania ’ s legal framework in line with contemporary standards. to this end, we are working under three main directions : drafting the law “ on payment system in the republic of albania ” is included in short - term priorities that the republic of albania, through the bank of albania, has undertaken in view of the obligations deriving from the saa, the european partnership, as well as in short - term and medium - term priorities required under the national plan for the implementation of the saa. this draft law aims at : - strengthening the system ’ s institutional framework ; - enhancing legal framework transparency through tasks clarification of participants in the