, such as the imf, the wb, for drafting the medium - term strategies and beyond, for the development of this sector as a vital sector of the market economy and the numerous challenges it has been faced with throughout these years. hence, the albanian banking system is presented as safe, sound, under a constant reformation and consolidation process, passing into a qualitatively new stage, which will provide the business and bank customers with a modern banking service that aims at achieving the levels and standards of western banks.

the functions of determining the volume of credit, issuing, banking interest rate, the payment system, etc. at that time, the reform in second - tier banks was focused on three main directions : 1. introduction of a new regulatory and supervisory framework ; 2. institutional policies in treating the non - performing loans ; 3. plans related to the privatization of state - owned banks. notwithstanding the measures taken for the banking system transformation till 1997, when the collapse of pyramid schemes reached the climax, the banking system was not able to operate effectively in carrying out its intermediation function. private banks, which consisted of small foreign banks or joint - stock banks and which did not have any subsidiaries, hesitated to extend loans and were focussed on foreign exchange transactions and trade financing. the state - owned banks were engaged in domestic lending, but they operated as government agencies, with soft restrictions in funds management and failed to apply the lending practices in compliance with international standards. also, the central bank ’ s supervisory capacities of that time were limited. some data indicate that the level of non - performing loans at end of 1996 reached to 60 % of the total loan portfolio. besides the weak performance in credit intermediation, the range of services provided to the public was also limited. many of financial activities in the economy were carried out outside the licensed financial institutions. the financial infrastructure, including the payment system of accounting and audit was also rather weak. lack of a formal operational banking system, associated with an insufficient structure of regulations and supervision, contributed to the flourishing of pyramid schemes. the 1997 events served as an encouraging element for deeper reforms in the banking sector. the government of that time, in cooperation with the international community and the bank of albania, affirmed the commitment to implementing a full program of reforms needed for the banking system. the government ’ commitment to carry out a full program of structural reforms in banking sector served as an instrument for re - establishing the public confidence in financial institutions and services. the program of that period was focussed on four main objectives : • improving the legal and regulatory infrastructure ; • building sound and reliable institutions ; • strengthening the financial infrastructure ; and • liquidating or privatising the state - owned banks. besides the adoption of new laws on the bank of albania, on the banking system, on bankruptcy, and on safe transactions, of importance was the program for a rapid change of the state - owned banks ’ ownership, which led to the liquidation of the anb and the establishment of the bad