fatos ibrahimi : banking system reforms, accomplishments and challenges in albania speech by mr fatos ibrahimi, deputy governor of the bank of albania, at the ninth cei summit economic forum “ fostering reforms and innovations for sustainable growth ”, a ministry of economy, trade and energy, central european initiative, tirana, 23 november 2006. * * * distinguished participants, allow me to express my pleasure for participating in this forum and for the opportunity to present some of the main developments that have taken place in one of the most important fields of the albanian economy, the banking system. my presentation will focus on two issues : first, the main steps followed by the reform in the banking area, presenting the problems related to commercial banks, omitting monetary aspects. secondly, the current situation of the banking system and some of the main problems it is faced with, which need solution over the short - term and medium - term period. the banking system reform was part of the structural reforms undertaken by the albanian authorities after 1992, which aimed at macroeconomic stability and albanian economy transformation into a market economy, by privatizing the economy and creating financial and social protection institutions. the banking system transformation in albania followed the same path as in other former socialist countries. the first important phase started with the passing from the one - tier banking system into a two - tier system, in which the former albanian state bank was divided into two banks, with a qualitatively distinguished activity from each - other. the bank of albania was given the conventional functions of central banks, such as : monetary policy, currency issuing, foreign exchange market ; while the national commercial bank, together with other banks, were given the conventional banking functions, such as accepting deposits, extending loans and other banking services. the laws “ on the bank of albania ” and “ on the albanian banking system ” adopted in 1992 constituted the grounds needed for this transformation. it is worth mentioning that one of the fundamental elements of the law “ on the bank of albania ” of 1992 was the granting of a relatively high degree of independence to the central bank, as a legal, institutional, financial and personal independence. this independence has been increasing constantly throughout these years, not only as a legal and institutional independence, by amendments made to the law in 1996 - 1997 and after the approval of the constitution, but also as an independence in the real aspect. under the law of 1992, the dependence of the central bank passed from the government to the parliament, being given simultaneously

##ly adopted by the bank of albania, allows the albanian economy to withstand these shocks at minimum cost. let us leave this mechanism operate smoothly, without excessive reactions from the market or its agents. any smooth moves towards the exchange rate equilibrium will be in the albanian economy ’ s own interest. any hasty short - term reactions, like the ones we have been attesting to over the course of the present year and in the early days of this week, bring about individual financial cost to those undertaking them, as well as financial cost to the economy. no economic agent is stronger than the foundations. the high volatility and uncertainty in the foreign exchange market do not have any real base. the euroisation of the economy is a visionary idea, not only for albania but for the entire region as well, since its final aspiration is the membership into the european union. it encourages the domestic and the regional market, and the european authorities, to speed up the convergence process. however, convergence in the euro area is a derivative of continuous structural reforms and strengthening of financial systems, wherein the stability of the currency is of prime importance. there can be no european integration without a longterm equilibrium of the national and european currency. in the long run, the exchange rate will inevitably reflect the sound foundations of the albanian economy, which are to remain so. the past years ’ equilibriums remain real indicators of the potentials of the albanian economy. in the long run, we remain deeply convinced of the benefits the free floating exchange rate regime brings about. it will be the passport to and the best support to the albanian economy in its path to european integration. i take this opportunity to invite all the economic agents to consider the benefits, that our national currency provides, impassively, as the best long - term instrument for protecting their savings and as the greatest buffer to wealth volatility. to albania, the lek has been, is and will remain a successful currency. the lek serves as an anchor for all our european initiatives. in the last 17 years, the lek has managed to withstand the inflationary pressures and the pressures deriving from the foreign markets. therefore, it should be left alone. it should move freely on its path, concurrent with the market demand and supply. the lek is the icon of the albanian economy that will guide us through the european gates. i take this opportunity to invite the media to comprehend this message and transmit it to the public at large. before giving the