PRESS RELEASE
Meeting of Supervisory Council of the Bank of Albania held on 16 June 2010

1. In its meeting of 16 June 2010, the Supervisory Council of the Bank of Albania analysed and approved:

• Supervision Annual Report 2009

Bank of Albania exercises the supervisory function in compliance with the legal responsibilities as the licensing and supervisory authority of banks and other financial institutions, licensed by the Central Bank. The purpose of this publication is first to inform the public on the role and activity of banking supervision and on the other hand, to provide information about the banking system and its main developments.

The Supervision Annual Report 2009, as complied from the Supervision Department, contains some units. It begins with a description of the supervision mission, dealing with the purpose and focus of supervision and the instruments for the successful accomplishment of this mission. Then, it proceeds with a brief summary of the new medium term strategy for the supervision development, a novelty as regards to the previous publications. Next, it is introduced a statement of developments in the regulatory and licensing framework in accomplice with the best international practices and standards. The on-site supervision is analysed in this publication, as well as the examinations, different findings and recommendations addressed to the examined institutions. A separate chapter provides a general assessment of the banking system’s performance in the light of risks and capital adequacy development to cover them. The report concludes with a description of the activity carried out by the Credit Registry.

Amongst the most important issues dealt with in the material are the following:

a) Supervision Development Strategy

The Banking Supervision Development Strategy, during the medium-term 2009-2011, is in line with the challenges that banking development encounters, imposed from the dynamic changes of economic environment, the changes of international standards for the banking industry and the supervision function, also considering the importance of banking sector for the Albanian economy. The subject of this strategy is the risk focused supervision, which implies the analysing of financial institutions based on priorities, the assessment mainly with regard to principles against rules and not only the quantity assessment of risks, but also the quality of their management and the auditing premises. In this framework, it is accomplished an assessment of the efficiency of the current Supervision Department units, under the current development conditions of the banking market. The Advisor from International Monetary Fund at the Bank of Albania provided assistance to this project. A model is complied at the conclusion of the process based on a more clear profile of risks and which aimed to correct the weak points of the preceding structure.

b) Developments in the regulatory framework and licensing

Year 2009 witnessed the drafting of several new banking supervision regulations and the revision of some others. This process considered in continuance the compatibility to the provisions stipulated in the Law “On Banks in the Republic of Albania”, the intertwining with the Basel Committee Principles and standards for effective banking supervision, the European Council directives and the best practices in the field of supervision regulation of financial institutions licensed from the Bank of Albania, and in particular imposed by the developments in the Albanian banking system and in the world financial markets, mainly from the latest financial crisis. The drafting and revision process of supervision regulations, during this year, also showed the pro-active character of the supervisory authority, expressed in the open discussions and meetings with the banking industry to share the opinions as regards to important issues for the system and for its particular banks. In the meantime, as regards to the licensing function, year 2009 recorded, inter alias, changes in the shareholders’ structure and shareholders capital of some banks, a growth of banking activities and products and an expansion of banks within the territory of the Republic of Albania, as well as an increase of non-bank institutions carrying out the financial activity, savings-loans associations and exchange bureaus.

c) On-site Supervision

The On-site supervision provides a close evaluation of banks and non-banks financial institutions’ activity and audits the compliance with the legal and regulatory framework. During 2009, the licensed entities’ activity underwent through scrutiny, particularly as regard to the liquidity needs, which has called for intensive commitment of human resources. Therefore, apart from binding by the supervision cycle, it is constantly kept in contact with banks, to caution in time worrisome supervision phenomena that have been observed all year long. There are taken appropriate measures to timely address already-occurred phenomena, particularly regarding liquidity conditions management and credit portfolio quality. Notwithstanding, the supervision focus and sources have been mainly orientated on banks’ examinations, in no case non –bank financial institutions are neglected owing to the share and importance they have in the financial system. The cooperation with different institutions which monitor special activities of the financial market has continued this year as well. On the other hand, Bank of Albania has become member of four bodies established with the initiative of the European Central Bank for the supervision of European banking institutions, which also develop their activity in Albania.

d) Key banking system developments

Year 2009, in contrast to the previous year, was characterised by more stable developments, notwithstanding some of the main indicators manifested a trend towards less favourable levels relative to the previous year. Analysis reveals for the second regular year an increasing risk rate and a decline in the financial robustness of the banking system. However, regulatory capital levels against the risk level, mainly against credit risk, generally has remained balanced owing to the considerably higher preservation rates than the regulatory minimum of capital adequacy ratio, or the accounting of a relatively high degree of regulatory capital coverage of total risks, including market risk. At year-end 2009, the banking system continues to be mainly financed by public deposits and focused on lending, mainly to enterprises. Deposits’ growth as an expression of the public confidence restoration seems to have regained their fall during the forth quarter of 2008. In the meantime, non-performing loans have rapidly grown and credit portfolio quality has considerably deteriorated. Therefore, the banking system profitability worsened due to the increase of expenditures on provisions for loan losses.

e) Credit Registry

The functioning of Credit Registry, since two years already, represents an important development of the financial infrastructure in Albania. It provides the concentrated addressing of the information and data regarding the exposure of any borrower and the related persons. Banks, throughout this year, have accomplished the reporting of the information in accordance with the required standards, as well as have exploited the information provided in the Credit Registry within the criteria and purposes stipulated in the respective regulatory and legal framework. The purpose of Credit Registry is to receive data from all the financial institutions committed in the lending activity. In this framework, Bank of Albania, during the year 2009 has observed with priority the project to encompass in the Credit Registry system the non-bank financial intuitions, being granted a license to carry out the lending activity as well as the savings & loans associations and their unions, but always taking account that its realisation requires the accomplishment of all the determined terms and conditions regards to technical infrastructure and regularity one.

The Supervision Report shall be fully published before long.

2. In accordance with the requirements set out in the Law No. 9662, dated 18.12.2006 “On banks in the Republic of Albania” and the regulation “On the licensing and conduction of banks activity and branches of foreign banks in the Republic of Albania”, The Supervisory Council of the Bank of Albania revised the application of Credins Bank Joint stock company to carry out the additional activity and decided:

To grant prior approval for Credins Banks Joint Stock Company, to carry out the intermediation activity for the monetary transactions of custodial, depository and trust.

This additional activity, approved for Credins Bank, Joint Stock Company, shall serve to the development and growth of baking and financial activity carried out from banks operating in the Republic of Albania.

3. In this meeting, the Supervisory Council of the Bank of Albania reviewed the draft-decision "On the approval of "Direct Procurement" procedure", to purchase the state-owned real estate “Former Dajti Hotel” from the Bank of Albania, with a limit fund amounting to ALL 4.148.400.000 (four billion and two hundred and forty million and four hundred thousand).

During the discussions as regards to this point of the agenda, based on the needs of the Bank of Albania, identified as increasing in years, for the expansion of the premises where Bank of Albania carries out its activity, and the meeting of requirements to approximating the work conditions with contemporary standards of central banking, the Supervisory Council of the Bank of Albania in accordance with point c, paragraph 4 of Article 1 and point 1, Article 4 of the Law No. 8269, 23.12.1997 “On Bank of Albania”, which stipulate the right of the Bank of Albania to purchase, when deemed necessary and adequate form the bank itself, real estate with the usage condition for the assurance and management purposes of its operational activity, assessed as indispensable a decision-taking of this body as regard to the enlargement of work premises, through the purchasing of ”Former Dajti Hotel” real estate for this purpose.

The Supervisory Council appraises that “Former Dajti Hotel’ real estate, provides construction land, premises, location and well-known historical values and altogether with the existing building of the head office provide a long-term solution to the Bank of Albania needs for work premises an a full support to develop its activity.

With regard to above stated, in accordance with the competences stipulated at the Law to decide on the overall management policies and the establishment of ways or procedures of financial assets use to carry out the operational activity of the Bank, and in line with the procurement procedures implemented at the Bank of Albania (Regulation “ On procurement procedures at the Bank of Albania” adopted by Decision No.81, dated 15.11.2006 of the Supervisory Council (Regulation “On procurement procedures at the Bank of Albania”, amended), at the closure of the revision, the Supervisory Council decided to approve the decision submitted on the respective practice for the purchasing of “Former Dajti Hotel” real estate.