PRESS RELEASE
Meeting of the Supervisory Council of the Bank of Albania held on 27 May 2009

1. The Supervisory Council of the Bank of Albania, in its meeting of 27 May, 2009 reviewed the Monetary Policy Monthly Report. After getting introduced with the current economic and financial developments at home and at the conclusion of discussions on their expected performance in future, the Supervisory Council of the Bank of Albania decided to keep the key interest rate unchanged, at 5.75 percent.

The world economy, during the first quarter of 2009, has perceived a slowdown of economic activity due to the turmoil that has swept across the developed countries and the considerable decline of growth rhythms of emerging countries. The reduced prices of main goods and the slowdown of the demand are due to the downturn of inflationary pressures worldwide. Nevertheless certain economic data on the recent months imply a countering of the global economic crisis dimensions, the ambiguity regarding future occurrences remains high.

Indicators on businesses and consumers' confidence, the tightening of economy funding conditions, the development of monetary aggregates and some specific indicators of fiscal performance recommend that Albanian economy has incurred a slowness of the growth rhythm during the first quarter of year, aligned with the developments occurring in the economies of the regional countries. Nevertheless, the main macroeconomic and financial balances of the country remain solid.

Annual inflation as at April 2009 was 1.9 percent close to the lower limit of the Bank of Albania inflation interval. The downturn of annual inflation regarding the first four-month of year arises owned to the weakening of inflationary pressures, relating to both cost and demand sides. The drop of raw material prices in international market was reflected on lower prices of production and import.

External trade activity recorded also a fall of exports and imports. However, the country trade deficit continues to remain high, recording an annual expansion of 4.8 percent during the first quarter of year. This enlargement reflects also the high demand of economy for imported goods mainly related to the infrastructure projects at home. Bank of Albania is observing carefully these indicators, by evaluating its implications on the country economic development in a long-term period and by factoring the long-term stability of external position in its decision-making function.

Fiscal indicators are characterised by the growth of budged revenues and expenditures. Budget deficit is expanded during the first four-month period of year, owing to the quicker growth of expenditures. The privatisation income and foreign funding have covered the major portion of this deficit. Notwithstanding the budget deficit remains within programmed parameters, its further increase should be monitored carefully to provide the ground for an equilibrated development of budget revenues and expenditures having regard to the reduction of budget deficit' effect on the domestic financial market.

Monetary growth, during the first quarter of 2009, continued to slowdown. Money creation was mainly owed to credit extended to the private sector, which is reflected on the growth of the domestic monetary assets. During this period, credit to economy recorded a further slowness of the increase rhythm. Lending to businesses continues to dominate credit portfolio. Meanwhile the major part of credit portfolio is denominated in foreign currency. Notwithstanding the developments that occurred during first quarter highlight the increasing interest of banks and businesses regarding the crediting denominated in LEK.

Bank of Albania, during April has continued to be present in the money market through liquidity injection via one-week and three-month REPO agreements. These seem to have affected the increase of exchanged volumes in the interbank market. Notwithstanding the decline of liquidity pressures, yields development in the primary market followed the growing trend of the first months of this year, by identifying the rise of risk primes for long-term interests. In March, interests rates of deposits denominated in LEK have recorded a slight increase due to promotional offers of banks on short-term deposits, as a response against the higher competitiveness in the market for liquidities acquisition. The average weighted interest for new loans in LEK in the first quarter has been relatively higher, following the yield development of Treasury Bills and liquidity conditions in the system.

Exchange rate development has followed the depreciation trend during April as well. The current occurrences in the exchange rate have not allowed the low prices in the global market be transmitted to the consumer prices in Albania. The weakening of domestic currency against the basket of main currencies is assessed to have effected the inflation of marketable goods in April.

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The Supervisory Council of the Bank of Albania based on the current view of real economy developments, the recent and expected progress in inflation and the occurrences in the financial markets decided ' to keep the key interest rate on Reverse Repurchase Agreements of one-week maturity term unchanged, at 5.75 per cent'.

The Supervisory Council of the Bank of Albania evaluates that this decision shall serve for enduring the macro-economic situation at home. It provides the long-term control of inflationary pressures within the targeted band set out by the Bank of Albania. This attitude provides also ground on the further strengthening of the financial system stability at home, by reducing the fluctuation of the balance of payments indicators and establishing the conditions on a more controlled resilience of economic agents with the new monetary and financial conditions.

2. The Supervisory Council of the Bank of Albania, in this meeting approved also:

• The Regulation 'On the core management principles of banks and branches of foreign banks and the criteria on the approval of their administrators'

The Regulation 'On the core management principles of banks and branches of foreign banks and the criteria on the approval of their administrators', is designed according to the Law No. 9662, dated 18.12.2006 'On banks in the Republic of Albania'.

The responsible management of banks nowadays is known as a powerful instrument to establish confidence and credibility for an institution. The Law 'On Banks in the Republic of Albania', stipulates the accomplishment and clearness of responsibilities for the managing structures of banks, meanwhile the new developments and tendencies of our banking system, the growth of lending activity, the introduction of new products and the increase of banks complexity in general, that arises the increase of risk profile for banks, serves as incentives for the introduction of contemporary concepts and practices of banks management.

In this framework this regulation emphasises the important responsibilities and functions that managing structures of banks have for the securitisation of their institutions' safeness and soundness.

The approved Regulation is a completion of the current Regulation where are set out the core criteria for an effective and responsible management of banks and branches of foreign banks, the criteria that administrators of banks and branches of foreign banks should meet, and the required documentation on their approval from the Bank of Albania. At the same time, this Regulation sets out the necessary criteria and documentation in the event of entering into agreements with third parties to exercise the functions and responsibilities related to the management and administration of banks.

• The increase of the qualifying holding of Islamic Bank for Development shareholder, from 15 percent to 55 percent of shares, through the purchase of 40 percent of the Ministry of Finance shares in the share capital of the United Bank of Albania Jnt. Stc.

According to the Law No.9314, dated 11.11.2004 'On the privatisation of shares, property of Albanian State, of the United Bank of Albania,' Ministry of Finance on March 30, 2009 finalised with the existing shareholder, Islamic Bank for Development, the Agreement on the sale and purchase of shares in the United Bank of Albania by setting out the conditions, terms and respective obligations upon which the sale & purchase shall take place.

The purpose of increasing the qualifying holding of Islamic Bank for Development is the strengthening of United Bank of Albania that shall effect the introduction of new products in the market as well as the reinforcement of this bank policies and the increase of capital.