ardian fullani : challenges facing the albanian economy and financial sector speech by mr ardian fullani, governor of the bank of albania, at the regional summit of governors and bankers, becici, montenegro, 20 june 2009. * * * distinguished governors, dear participants, i want to start by thanking the organizers of this meeting, for promoting this joint discussion regarding the status of our financial sectors and the measures which are necessary to sustain its resistance to the negative effects of this unprecedented global crisis. indeed, what started as financial crisis in the usa, has transformed itself into an economic crisis, that is having dire consequences in real sectors of the world economy. i will start by describing the main macroeconomic developments of our economy and the characteristics of our financial system, which is similar to other countries in our region. then i will proceed with some of the measures taken by bank of albania, to alleviate the impact of the international financial crisis on our banking sector and the economy. i will finish by mentioning some thoughts on future policies, which i consider important to strengthen the economic environment and the financial stability in our region and in albania. the albanian economy has been growing steadily over the last decade our economy has been in a solid path of growth for the last decade, with an average annual growth rate of around 6 percent. it has benefited from economic reforms that have provided development opportunities for our private business sector, have sustained markets development, have promoted competition, have stimulated flexible labor markets and have increased social revenues. supported by an imf assistance program, both fiscal and monetary policies have been cautious in providing the necessary stimulus to the economic growth, by being consistent and disciplined in the pursuit of their objectives to achieve fiscal consolidation and ensure a low - inflation environment. this steady good economic performance has been supported by a flexible exchange rate that has been instrumental in supporting and maintaining a balanced growth, by maintaining the right incentives for interaction between domestic and foreign counterparties. as in other countries in our region, the banking sector dominates the financial system in albania the assets of the banking sector make around 95 percent of the total financial assets in albania, or around 80 percent of gdp. nowadays, the banking sector counts 16 banks with around 500 branches, all in private hands, where the foreign capital dominates. over time, the sector has increased the number of branches, has improved its products to the public and has increased its intermediating role. at the same time, the entrance of well - known european banking groups from greece, austria

services expansion through the bank offices over 2005 the banking system continued to expand its network rapidly within the republic of albania territory. it expanded with more than 50 branches and agencies throughout the country, although most of them were established in tirana. a considerable number of branches and agencies have been opening in small towns, indicating that a large share of the population is now being provided with banking services. almost all banks have established new branches and agencies, but just like in 2004, the opening of 29 branches and agencies by the small banks ( g1 group ) makes an impact. it mainly relates to the significant growing number of banka popullore branches, which opened 15 new branches throughout the territory of albania over 2005, and to several other banks within this group, which expanded with some new branches and agencies after a period of long inactivity. the number of employees grew considerably over 2005, by 24 per cent, from the growth of 26 per cent over 2004. this significant growth in the number of employees is mainly related to the expansion of the banking system network and to the extension of the banks ’ activities, which requires a better division of work and a more complete organizational structure. by the end 2005, the albanian banking system had 3, 479 employees, from 2, 816 over the previous year. compared to the previous year, the number of employees per banking unit decreased over 2005. in 2005, banks had 13. 9 employees per banking unit, compared to 15 over 2004. such a decrease has been a consequence of the growing number of branches and agencies with higher rates than the growth of the number of employees. a considerable number of branches and agencies have been established in sparsely populated areas ; as a consequence, the number of employees in these branches and agencies has been quite small. the number of loan officers has increased considerably, following the significant growth of lending over 2005 and in the upcoming period. a considerable number of banks have restructured their loan departments, aiming at a more distinct division of duties and responsibilities. the increase in the number of banks, branches and their agencies, as well as the growing number of bank employees have caused the coverage of the population to improve significantly. thus, the number of inhabitants per bank, banking unit and per bank employee has decreased considerably. table 2 : coverage with banking services 2, 236 2, 816 3, 479 13. 9 13. 9 bank 206, 851 194, 971 184, 410 banking unit 20, 815 16, 593