and the uncertainty for the nature of its effects, the institutions ’ map, the types of instruments and its extent, do theoretically increase the risk of its impact on the financial system at home. basically, this crisis has not provided its impact on the banking activity in albania. the albanian system ’ s immunity to this crisis arises from certain factors, namely : • the relatively low exposure of the albanian financial system to international financial institutions ; • the low integration level in general ; and • the well - capitalized activity of european banking groups and their branches operating in albania. in general, we consider that no risks that may be materialized or which may harm abruptly and severely the activity of the financial system are identified. however, i would like to dwell on the risk analysis of the banking sector. scenario - based risk analyses confirm that the banking sector has the capacity to cope with the various risks that may arise as a result of the unwelcome shifts in the exchange rates and interest rates. prudent monitoring of assets ’ quality is required and time is ripe to pay greater attention to the performance of liquidity indicators. with respect to the latter, the following aspects are crucial to keep under consideration : first, the absence of a developed money and securities trading market curtails the financial institutions ’ capacities to meet the unexpected liquidity needs through the sale of assets considered as “ liquid ”. in addition, as a result of the financial crisis in the international markets, the trading of some securities, which were previously considered as favourite to the investors, has become challenging second, the differences in the size of the banking sector ’ s institutions, the collateral ’ s quantity and quality, and the restrictions for the direct exposure among institutions hamper the circulation of liquid funds in the interbank market in the duly time and extent. third, given the enhanced competition, there is a risk that significant disproportions arise between assets and liabilities in the balance sheet, with regard to type of currency and maturity term ; fourth, some institutions have also turned to borrowing from parent banks in order to maintain the lending promptness and size ; fifth, owing to objective factors that have conditioned the lack of efficiency, the banking sector at home has been characterized by very high liquidity levels. given the enhanced competition and improved efficiency, it is objectively expected that liquidity indicators being to shift downward. these factors hamper the setting of the optimum liquidity level, in which the enhanced efficiency in fund use does not shackle

ardian fullani : achievements and challenges of the albanian banking system speech by mr ardian fullani, governor of the bank of albania, at the open forum with the albanian banking system ’ s players, tirana, 29 september 2008. * * * dear heads of commercial banks operating in albania, dear participants, it has almost been 6 months since the first open forum was held, at the core of which were the achievements and challenges of the albanian banking system. today ’ s forum is a follow - up of the debate which commenced 6 months ago with the good will and goal to further bolster the banking system ’ s stability in albania. i consider the first forum a successful one, given that it generated a number of important decisions that have been made recently. in addition, i have the strong conviction that the discussions to be held this afternoon will be productive and will serve to the prudent examination of the banking system ’ s activity, in particular in the context of the recent developments in the global financial markets. to begin with, i would like to provide a general overview of the banking sector ’ s financial situation and the extent of impact from the developments in the international financial markets. during the first half of 2008, the banking sector maintained its stable growth pace. the albanian banking system is lucrative, well - capitalized and liquid. the good financial result continues to be driven by the rapid growth of high return on investment activities. as of end june 2008, credit portfolio of the banking system accounted for nearly 43 % of total assets, increasing by 3. 6 percentage points relative to end - year 2007. consumer deposits remain the main funding source for the activity, accounting for 80 % of total assets. business funding through the credit lines from the parent banks increased to 9 % of total assets in the first half of 2008. as of end june 2008, return on average assets was estimated at 1. 3 % while return on average equity equalled to 16. 6 %. capitalization indicator of the financial sector, and in particular of the banking one, increased slightly. capital adequacy rate of the banking sector showed a slight increase to 17. 3 % as of end the first half of 2008. liquidity indicator continues to remain at higher levels compared to the other regional countries. liquid assets of the banking sector share 47 % of total assets, dropping by about 5. 7 percentage points relative to end - year 2007. the spread of the u. s. economy crisis to the international financial markets