ardian fullani : analysis of economic and financial developments in albania speech by mr ardian fullani, governor of the bank of albania, at the 24th conference of banking supervisors from central and eastern europe, tirana, 12 april 2011. * * * distinguished ladies and gentlemen, allow me to first wish you a warm welcome in the 24th conference of banking supervisors from central and eastern europe, which this time is taking place in tirana. the bank of albania considers this forum as very important and a platform where participants may exchange their institutions experiences with each - other. this forum is a modern highway that allows for a rapid convergence of our supervision practices with the best standards. let me now continue with a summarised analysis of economic and financial developments in albania over the last two years, focusing on some concrete issues requiring more attention by the banking industry and the supervisory authority in the future. the albanian economy was characterised by positive developments during the pre - crisis period. annual economic growth was on average 6 per cent, with admirable and stable core macroeconomic indicators. growth relied on a firm strengthening of internal demand components while funded by internal resources, mainly through rapidly increasing loans to the private sector and loans for investments. the banking sector, which dominates the domestic financial system, has also undergone a significant transformation in recent years. this is due to the entrance in the market of renowned european banking groups, expansion of banking infrastructure and upgrade of customer services. financial performance has been good, recording average levels of return on equity and on assets, respectively over 20 per cent and 1. 5 per cent. over the years, the banking system has chosen to capitalise the majority of its profit in order to best support its activity with liquidity and capital. during this period of a rapid and qualitatively better expansion of the banking activity, the bank of albania found it necessary to revise the supervision philosophy. the main ambition was its orientation towards sources of risk, in other words to strengthen control over banking activity. for that reason, at the end of 2006 a new law “ on banks ” was adopted. this law imposed, on the banking industry, more contemporary standards as regards realisation, direction, and control of the banking activity. the main concerns consisted in high crediting levels, significant concentration of crediting in foreign currency, and the absence of sectorial diversification. consequently, at the end of 2006, the bank of albania introduced a number of regulatory amendments aiming at slowing down crediting growth levels, through

of plentiful rainfall country - wide. finally, we have risks relating to how thailand ’ s political situation will evolve going forward. this is an issue which remains a known - unknown to most thais. for this evening, i have been asked to dwell a bit more into the interactions between politics and the economy in the context of what has been happening in thailand. without getting too much off track, let me end my remark with three personal observations on this point. first, it is clear that politics does affect the economy and its performance. the channels of impact come largely through : ( 1 ) disruption to normal businesses from unsettling political events as we have seen in the last two years ; ( 2 ) its effects on the country ’ s image internationally which negatively effects our international sectors such as tourism and exports ; and ( 3 ) its impact on investor confidence due to the perception of political instability. these are the short - term impacts or shocks, that once they happen, the economy will need to adjust to. my second observation is that the thai economy so far has been resilient in adjusting to such shocks. as i noted, the impact on the economy from the april and may political events seems to be limited. this positive quality can be attributed to the economy ’ s strong fundamentals and the high sense of tolerance by the thai public. if, however, such shocks are more frequent or of a longer duration, they can erode the capacity of the economy to adjust to future shocks. and the third observation is that political instability, if it persists or worsens further, will have adverse implications for thailand ’ s long - term economic performance. this is because political instability affects policy continuity as well as divert the attention of policymakers away from the longer - term issues. if that happens, the lack of a clear long - term policy can discourage the flows of future investment, both domestic and foreign, thereby limiting the economy ’ s capital formation and potential growth. fortunately, thailand is not yet at this stage. investment both private and public, are still growing. and at the bank of thailand, we always approach the policy decision with a longerterm perspective. today ’ s decision to begin the process of policy normalization is a clear example of decision taking with a view of preserving longer - term economic and financial stability. this is what we do and this is what we will continue to do. let me stop here. i hope this brief remark has been useful. again i want