Role of Banks in the Monetary Policy Transmission in Albania

This paper contributes to the empirical findings on the bank lending channel of monetary policy in Albania by using the individual data from the main twelve commercial banks. In particular, it is aimed to analyze whether the private loans developments can be explained by changes in the monetary policy indicator, as measured by the rate of one-week repurchase agreements. The empirical findings suggest that bank loans have responded only modestly to monetary policy decisions during the 2004q1:2006q4 period. Coefficients of the monetary policy indicator are statistically significant and have the expected negative sign, thus supporting the theoretical relationship between interest rates and the volume of loans. Nevertheless, the empirical evidence to support the existence of a bank lending channel in Albania is mixed. While the smaller banks are found to be less sensitive to the monetary policy stance compared to the larger banks - and which is contrary to theoretical and intuitive expectations - the results show that yet the more liquid banks are better shielded to monetary policy changes - which is in line with the bank lending channel theory.