non - performing loans increased in 2009 owing to the economic slowdown and the exchange rate depreciation. loan portfolio quality index expressed as “ non - performing loans to total outstanding loans ” rose to 10. 48 percent as at end 2009 from 6. 64 percent at the end of 2008. on net basis, that is deducting total provision fund, the same figure is only 6. 3 percent. the bank of albania has monitored the situation closely being aware of the pro - cyclical effects that these developments may have on the loan portfolio. despite the loan portfolio deterioration, capital adequacy and quality, to carry out the banking operations, to extend and expand lending, have remained almost intact. although the loan portfolio growth is below the previous years ’ levels, it is satisfactory and at higher levels than in the region. based on the periodical stress - tests, the bank of albania has identified all banks ’ needs for capital, thereby enabling a rapid increase of the capital when necessary. banks ’ responses were instantaneous bringing in new capital. total regulatory capital of the banking system increased 37. 7 percent, being dominated by the core capital providing evidence for a qualitatively good and sustainable regulatory capital. the banking system ’ s capitalization level was significantly above the regulatory minimum required by our regulations and international practices. efficiency indicator shows almost the same level as at year - end 2008, attesting to a prudential and stable growth of banking activity in general. on the other hand, shareholder ’ s equity is estimated to have increased 18. 7 percent in 2009 versus 2008. financial leverage reduced gradually during 2009. the decline of the financial leverage from 11. 7 to 10. 4 percent over a year implies that the system has relied less on debt to finance assets. compared with the european union countries, the albanian banking system ’ s financial leverage remains low attesting to a low degree of the system ’ s borrowing practice. this indicator provides further evidence for the sound situation of the banking system. the network expansion of banking branches and agencies in the territory of albania persisted in 2009 however at lower rates compared to the previous years. as at year - end 2009, the total number of branches and agencies amounted to 530 from 517 at the year - end 2008. 17 new bank branches were opened while 4 existing branches were closed. 2. 2 banking system supervision the medium - term strategy for banking supervision approved in 2009. the main pillar of this strategy is the adoption of a new philosophy :

the last fomc meeting. i was pleased that we dropped the reference to “ significant ” in describing the remaining labormarket slack and that wording was included indicating we might well move to raise rates bis central bankers ’ speeches sooner than thus far assumed, should the economy proceed along the trajectory i think we are on. to me, this neutered the adjective “ considerable ” in stating the time frame under which we might act. this is why this particular hawk voted “ yes ” in support of the statement we released on wednesday. now to the exit... of course, i am concerned with what will happen to all the liquidity that remains in the system in the aftermath of our qe programs. the depository institutions we transact with have put back to the 12 federal reserve banks some $ 2. 7 trillion in excess reserves. “ excess ” means they cannot find better uses for that money than earning the 25 basis points ( 25 / 100ths of one percent per annum ) we pay them until they can find creditworthy borrowers to lend to at significant multiples of that amount. and considering that this $ 2. 7 trillion represents perhaps as little as one - fifth of the amount of ready liquidity in the u. s. financial system – that being held not just on deposit at the fed banks but also by nonfinancial corporations, private equity funds, other investors and households – there is a lot of inflationary tinder available should the fed mismanage its exit from the hyper - accommodative policy we have pursued and augmented with qe3. thus, only time will reveal the efficacy of the policy we have pursued and whether the risks that i and other observers ( among them my mentor, paul volcker ) fret over are as substantial, or whether we have made much ado about nothing. my former colleague, the wonderful ex - banker and much - admired fed governor betsy duke, was quoted on oct. 28 in the washington post as saying this about qe3 : “ it ’ s still important to see what the ultimate costs are going to be. you can ’ t really judge those until it ’ s completely unwound. ” 4 betsy is spot on. channeling shakespeare in june of last year, i gave a speech in toronto in which i likened the post - zero - bound monetary policy to a shakespearean drama with five acts, suggesting we were then in the last scene of the third act of a play titled