PRESS RELEASE
Meeting of the Supervisory Council of the Bank of Albania held on 10 June 2009

1. The Supervisory Council of the Bank of Albania, in its meeting of 10 June 2009, analyzed the banking system's situation for the first quarter of 2009.

In the first quarter of 2009, the banking system's total assets grew slightly by 0.04 percent in relative terms, as compared to year end 2008. Total placements with non-resident financial institutions declined in the first quarter by about ALL 1.84 billion (3.55 percent). Banks' main relations are maintained with institutions headquartered in Greece and Austria, followed by Germany, England, Italy, etc.

Loans grew by 5.25 percent or ALL 20.84 billion as compared to the 5.07 percent growth (ALL 19.14 billion) the previous quarter. In annual terms (March 2008-March 2009), loans grew by 33.3 percent or ALL 104.3 billion. However, the increase owes mainly to the exchange rate effect. The analysis of loans by type of currency attests to the fall of foreign currency-denominated loans. This implies that in absence of a change in the exchange rate, total loans increased by ALL 2.94 billion or up by 0.74 percent.

In contrast to the previous quarter, the analysis of the loan portfolio for this quarter attests to the higher growth rate of business loans as compared to individual loans. The classification of loans by businesses and individuals) and purpose of use shows a greater share of individual loans for real estate purposes with 23.3 percent^[1] of total outstanding loans, followed by business overdrafts with 20.7 percent of the total. Individual loans for the consumption of non-durable goods, followed by overdraft loans and working capital loans to businesses recorded the highest growth rate.

In terms of loan portfolio by currency, ALL denominated loans posted the highest increase in this quarter. ALL and foreign currency-denominated loans grew by 6.88 and 4.64 percent, relative to 9.4 percent and 3.5 percent, respectively, in the previous period. Large banks respond better to the exchange rate risk associating foreign currency-denominated loans when the borrower's income is in the Albanian Lek, compared to small and medium-sized banks in the system.

Non-performing loans' growth rate declined in the first quarter of 2009 to 19.73 percent. Non-performing loans to outstanding loans is estimated at 7.55 percent from 6.64 percent at year end 2008. This indicator recorded its peak of the last six years in February this year, when it reached 7.77 percent. The quality of business loans remains a concern. In addition, lek-denominated loans remain a concern with respect to their quality versus foreign currency-denominated loans. In terms of loan quality by branches of economy, real estate, processing industry and fishing, which have an almost negligible share in total loan portfolio -except for processing industry loans-, appeared as the most problematic in March 2009.

The banking system's total regulatory capital as reported is up by 4.4 percent compared to the 0.37 percent increase in the last quarter of 2008. Core capital remains dominant in the system's regulatory capital accounting for 95 percent from 93.7 percent the previous year. This performance attests to a more qualitative and stable regulatory capital. Supplementary capital is composed of subordinated debt. The banking system's ability to cover the potential loan losses with regulatory capital, which deteriorated significantly over the course of the year 2008, did not undergo significant changes in the first quarter of 2009.

Capital adequacy indicator remains high at 17 percent compared to the minimum of 8 percent required by the international standards.

The withdrawal of deposits, which began in October 2008, persisted in the first quarter of 2009 as well. As of end March, total deposits in the system amounted to ALL 634.5 billion, down by 2.5 percent relative to year end 2008. Starting from October 2009, the withdrawal of deposits was more moderate in March the present year. Based on operational data on the period from 1 April 2009 to 8 June 2009, deposits denominated in the Albanian Lek, Euro and U.S. dollar have increased by 3, 0.2 and 0.3 percent, respectively.

Credit lines from parent banks, other banks in the group and other non-resident financial institutions are another important financial resource for some of the subsidiaries or branches of foreign banks operating in Albania. Over the course of the first quarter of 2009, they were up by 5.5 percent.

The ratio of loans to total deposits increased by 4.3 percentage points in the first quarter of 2009 relative to December 2008, owing to the fall in consumer deposits. In the meantime, loan portfolio increased. The banking system's liquid assets' adequacy indicates that they are sufficient to cover in the event of fall in deposits.

In contrast to the preceding quarter, the banking system's net result for the first quarter of 2009 reports a positive figure of ALL 275 million, which is lower than the quarterly average of ALL 1,833.9 million in 2008. Loan loss provisions (twice higher) and operating expenses, which attest to the ongoing growth of banking activity relative to the previous year, provided the main impact over this figure.

2. The Supervisory Council of the Bank of Albania decided to approve in this meeting as follows:

• The Regulation 'On the Prevention of Money Laundry and Terrorism Financing '
• The Regulation 'On Reporting at the Bank of Albania According to the Unified Reporting URS)'
• Some Amendments to the Regulation 'On the Management of Risk Arising from Bank's Large Exposures ' and an Amendment to the Regulation 'On Credit Risk Management'

[1] Individual loans for investment in real estates account for about 68.5 percent of total individual loans.