##ing and economic growth to gather speed. this performance was disrupted by the global financial crisis effects spilled over to albanian economy. however, unlike in many countries of the region, the crisis did not trigger recession or a proper financial crisis in albania. yet, indirect effects were present both in the economy and in the financial system. as a monetary, supervisory and regulatory authority of the banking sector, in recent years, the 1 / 4 bis central bankers'speeches bank of albania has focused on addressing challenges introduced by the crisis. let me present a brief overview. first, due to aggregate demand slowdown and exchange rate depreciation, the financial situation of households and enterprises worsened ; hence non - performing loans rose rapidly and credit supply contracted. among other things, the rise in non - performing loans pointed to the need for comprehensive improvement of the legal and regulatory environment, especially with regard to the execution of collateral. against this backdrop, in cooperation with other public agencies, the bank of albania compiled and implemented a detailed programme of measures, which addressed thoroughly the identified inadequacies. as a result, the level of non - performing loans dropped rapidly and credit supply improved. this action also created adequate conditions for its growth to gradually pick up the pace. second, following the introduction of stricter regulatory requirements on banking activity in the european union, foreign banks reduced their exposure to both regional economies and albania. known also as deleveraging, this effect showed that higher integration of the banking sector exposes us to monetary policies and regulatory requirements applied in home countries. in response, the bank of albania has worked towards aligning our domestic supervisory and regulatory framework with european union standards. we have implemented, in this regard, a new macro - prudential strategy, after the model of the european system of central banks. we have also carried out a comprehensive review of the supervisory and regulatory frameworks, to better address the risks to the banking sector : operational risk, market risk, credit risk and liquidity risk. finally, we have actively participated in an international forum for addressing this phenomenon, known as the vienna initiative, and have enhanced our communication with international partners and home - country regulatory agencies. third, we have spent a lot of time and energy administering a consolidation process in the banking sector. as a result of this process, which may now be considered as finalised, the number of banks has now been reduced to 12. this has created the premises for the banking sector to be more motivated to lend, innovative in

necessary promotions to their staff. in the meantime, their boards of directors and shareholders of these banks should strengthen the monitoring and should be ready for a larger financial support for the bank ’ s activity. in particular, i would like banks to be cautious with regard to : • the continuous monitoring and controlled conduct of lending activity, focusing on setting realistic development objectives, on the exposure to related persons, exposure to foreign currency – in particular, to borrowers with insufficient financial assets in foreign currency, exposure to new loan products, such as consumer loan, etc. it is crucial for banks to rigorously observe the lending and loans ’ quality analysis procedures. moreover, they should maintain a conservatory stand, in terms of being insured with pledges and collaterals, and of providing for reserve funds, required in cases of non - performing credit risk. in this context, the bank of albania expects commercial banks to duly observe the final amendments made to the regulation “ on managing credit risk ”. • the consolidation of internal control systems of their activity, in view of the adoption of best accounting standards in management, as well as the careful formulation and analysis of financial statements by the banks ’ structures and their internal and external auditing. with regard to the latter, we are under the process of enhancing the reporting system, by shortening the reporting time of the financial data, periodically reported by banks to the bank of albania. we think that banks should qualitatively improve the method of preparing and reporting these data to the bank of albania. these issues will be the topic of discussion in a special meeting to be held in the near future. from the legal viewpoint, the issues related to the conduct of a safe banking business have been addressed at a higher level, in the new law “ on banks in the republic of albania ”, passed by the albanian parliament on 18 december 2006, and becomes effective on 1 june 2007. some of its important amendments are the following : a more complete addressing of banking business supervision issues, including the organization, the risk monitoring, the provision of prudential supervision norms, the clarification of procedures related to the management and liquidation, the inclusion of some general principles related to the client ’ s protection ( consumer of banking products ) etc. following the notification sent by the bank of albania on january this year, the banks should speed up the steps to duly and timely carry out the necessary changes in their internal procedures, which ensure the complete consistency of their business with the requirements of the new law