ardian fullani : past and future banking reforms in albania and the region speech by mr ardian fullani, governor of the bank of albania, at the fifth international banking forum, athens, greece, 6 december 2006. * * * honorable dr. margret doyle, dear mr. chairman, distinguished participants, before starting my speech i would like to briefly address the perennial question that stands at the heart of our quest : “ are the prosperous times ahead of us? ” it comes to my assistance an old saying of one of your ancient philosophers, eupides : “ prosperity is full of friends ”. as we are gathered here as friends, i believe we have a positive answer to this question. i would like to thank “ the economist conferences ” for inviting the bank of albania in this very important forum. it is a great pleasure to be here today. the topic of my speech will be economic reforms. i will take this opportunity to express my views on past and future banking and financial reforms in albania and the region. the topic is not new of course. however, reforms and their implementation are a dynamic process that must reflect changes and expectations for future developments in both domestic and global markets. therefore, it will always be an open discussion in need for new ideas and solutions. central banks are important contributors to the economic reforms and their implementation. they not only welcome and support but also generate reforms in the capital, labor, and product markets. such reforms have ripple effects that go beyond economic benefit of a long run stable growth and financial stability. i believe that positive spillovers will be materialized in the south east european region ’ s prosperity and its economic and political integration in european union. the bank of albania has been a constant generator and supporter of reforms both institutionally and as the provider of stable prices, sound macroeconomic conditions and financial stability. it makes an undeniable fact that financial integration which we are experiencing will be to the forefront of european union integration process. it will ease the challenges and speed up the process of european integration which albanians have embraced by wide popular consent. like in many other transition economies banking reforms in albania were implemented as an integral part of the structural reforms undertaken to transform the albanian economy in a market oriented economy. continuous improvement, along with approval and implementation of new banking legislation and supervisory regulation ; liquidation and privatization process of the state owned banks ; and foreign ownership ; have change banking and financial markets. foreign banks have been an important push factor toward increasing efficiency, number

, quality, and coverage of financial intermediation. new entries, mergers and acquisitions are recently altering the market structure in both asset and liabilities. reforms that brought big european players and their capital in the market, have further increased confidence in our economy and in the region as whole. however, the presence of foreign banks does not replace the need for legal and institutional framework. moreover, latest developments in banking and financial markets might foster additional risk factors related to asymmetric exposure, issues of home host supervision and financial safety net with foreign banks dominance. these challenges and the expected financial developments in the region will outline the scope and the structure of reforms in the future. so, please allow me to briefly present my view on the future trends of regional financial markets. financial markets in the region are becoming part of broader global developments which fuels financial integration, liberalization, and financial innovation. the lucrative regional market and the consolidation process have imposed a vertical financial integration in the region. less than ten european banks with headquarters in vienna, athens or milan dominate the regional banking markets. the process of financial integration will continue, making the region more and more integrated to the european countries. financial systems are leading the road to financial integration and the positive spillovers of such process will spread over. financial markets are and will continue to be bank dominated. non banking financial sector will grow very rapidly, but banks will continue to be the major players. they will help to further build the needed financial infrastructure for nonbanking financial activities, and support growth in our economies. not long ago i asked a friend of mine who had recently returned from migration after 15 years : “ why did you come back ”? his answer was simple but true : “ it is not important for me where i like to live – he said – it is important where the opportunities are ”. as the gap in living standards closes and albanians see opportunities flourishing in albania, they will come back. they will bring important human capital and managerial skills, which they have gained in the countries where they work. many albanian emigrants are at this stage of the migration cycle and we see potential benefits from such a process. it is the role of banks to match this human capital with necessary financial capital and provide financial services to develop their entrepreneur skills. this role comes very naturally to greek commercial banks that operate in albania, which i take the opportunity to thank for their early confidence in albania. they are natural partners for these new entrepreneurs who are familiar with the culture, and probably