ardian fullani : summary of the latest macroeconomic developments in albania address by mr ardian fullani, governor of the bank of albania, to the meeting “ the banking system over 2007 : the governor communicates with the market ”, tirana, 26 march 2007. * * * distinguished participants, considering the today ’ s meeting of a special importance in line with our institutional tradition and intensive communication with the general public, particularly with the main market stakeholders, i would like to thank you for your participation. i think that such meetings further increase the degree of mutual understanding, aiming at enhancing the financial market efficiency. allow me to start my address, making a brief summary of the latest macroeconomic developments. likewise in 2005, the albanian economy, even during the last year, continued its path towards macroeconomic consolidation. the country ’ s gdp is estimated at 5 percent growth in real terms. this growth has been associated with price stability, denominated in an average annual inflation of 2. 4 percent. the monetary conditions, characterised by historically low interest rates and a stable exchange rate, have favoured the rise of investments and consumption in the economy. particularly, they have been reflected even in the rapid credit growth, further sustaining the economy growth. the fiscal developments have resulted within the programmed levels, contributing to further consolidation of the public finances and to budget deficit control. the extension of the country ’ s economic activity has been associated with increased foreign trade exchanges. the balance of payments for 2006 has recorded positive terms, sustaining the exchange rate stability. from the boa ’ s monetary policy viewpoint, i would like to underscore that year 2006 coincided with a change of the previous direction. initially in july and later on in november 2006, the boa ’ s supervisory council rose key interest rate by 0, 25 pp, leading it to 5, 5 percent, from 5 percent at end of june 2006. the bank of albania decisions were a reflection of a number of risk factors, whose presence constituted a potential risk on the long - term inflation performance, which, i re - emphasise, from the legal viewpoint, constitutes our primary objective. the bank of albania is confident that its decisions were appropriate and they have served to orient inflationary expectations within the target range. end - 2006 and first quarter of 2007, as well as current inflation forecasts indicate that we have been successful in this direction. however, i avail myself of the opportunity to re - emphasise that we remain totally committed to successfully monitor the current

pay in this direction. the macroeconomic stability is of primary importance, but without doubt, even the financial stability is of the same vital importance. we should not forget that the segment represented in this audience constitutes the most developed and regulated part of the whole financial sector. the banking system in albania has been transformed into a promoter of the country ’ s economic sustainability, by extending funds to the economy. at the same time, the variety of financial products it supplies is being increased year on year. at end - 2006, the banking system was presented in a good financial position. its assets were to all 624. 3 billion, or about 25. 7 per cent more than in end - 2005. the banking system deposits have amounted to all 520. 3 billion, reaching 20. 2 percent on annual basis. the loans portfolio is estimated at all 197 billion, 55 percent higher than year - end 2005. about 28 percent of the loans portfolio has been extended in all, while the rest in foreign currency. at end of 2006, the loans portfolio quality resulted to 3. 05 percent. in december 2006, the capital adequacy ratio was 18. 1 percent ; while the banking system profit was all 7. 45 billion. return on assets was 1. 36 percent, whereas return on equity was 20. 2 percent. it is my pleasure to observe the increased number of branches and banking agencies and the ever increased geographic covering of the territory with banking services and products. the entry into the market of distinguished european banks is another accomplishment of the last year, which is expected to continue even during the current year. being driven by competition, banks have been more aggressive in lending, using new segments of the lending market, such as consumer credit or real estate loans. in spite of what i mentioned earlier, it does not mean that we are automatically immunized against various risks, which may occur from one moment to the other. furthermore, the rapid credit growth is an argument for more prudence, particularly in terms of its quality. being completely aware for our role as a decision - making and regulatory institution, we have decided to raise our vigilance in this direction. we will create a specialised unit, i. e., the financial stability department, as a first step. the safeguarding of the banking and financial system stability will be given a new dimension relating to the policy of licensing the conduct of banking business by the bank of albania. once more, the bank of albania emphasizes its objective related to