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Brief History of Banking Supervision in Albania

Brief history on Banking Supervision

The approval in 1992 of the law "On the Bank of Albania" and "On banks in the Republic of Albania" acknowledged the Bank of Albania the performance of the Banking Supervision function.

According to the above mentioned laws, Banking Supervision Department was established to perform supervision functions on second tier banks oriented to the market economy, and preparing regulatory framework of the Banking Supervision.

Since 1992, considered as the year when Banking Supervision started its activity, both the functions and activities of the Banking Supervision Department have undergone the process of organization and creation of the regulatory framework pursuant to the law. At the same time recruiting and training of the staff was a priority in order to upgrade their skills in Banking Supervision area.

Year 1993 and 1994 are years in which the first regulations on Banking Supervision were drafted and Banking Supervision norms were set for the state-owned banks.

Based on the requirements of the law "On the banking system in the Republic of Albania", Basle Committee Principles on Banking Supervision, and the experience of other countries, the regulation "On the requirements for granting a license to act as a bank in Republic of Albania" was drafted and approved.

During 1994, banking Supervision Department was organized in the following units:

  1. Methodology and Licensing Unit
  2. Off-site Examination Unit
  3. On-site Examination Unit

With the above restructuring changed the concept and the completion of the functions of the Department in accordance with the international standards.

During 1995, the objective of the Department was mainly to check out the way of implementing the issued regulations, the completion and review of the existing regulatory framework with the aim of meeting international standards on Banking Supervision defined by Basle Committee.

During the years 1995-1996, the banking system changed its composition. New joint ventures, branches of foreign banks and private banks incorporated in Albania were introduced. The expansion of the banking system with private banks brought several changes on the bank operation and services.

Failure of the state-owned banks to perform their role in a market economy made indispensable their privatization, a process that has started since 1997 and is still going on. This period was accompanied with the crises of 1997 that had its negative effect on the entire banking system and especially on the state-owned banks. Notwithstanding, during the above period some positive events were observed in the area of the banking activities and supervision.

It is worth mentioning that despite of the situation all over the country, banking system continued to attract the interest of foreign investors. The above interest became evident in the establishment of two new banks that started their operations and another one got preliminary license.

In 1997, the Rural Commercial Bank, a state-owned bank was closed down due to a failure in its privatization process in the framework of restructuring the state-owned banks. The closing of this Bank was made by the Ministry of Finance and was supervised carefully by the Bank of Albania in order to avoid as much as possible problems that might have arisen with its depositors and clients.

The year 1998 should be considered as the year where qualitative steps have been taken in improving either regulatory framework of the Banking Supervision and the examination of the banks and branches of foreign banks The above steps were dictated by the changes in the banking system, that consisted in entering of new banks and branches of foreign banks in the Albanian banking market with special features with respect to their ownership and the activities they conduct and particularly by the Core Principles for an effective Banking Supervision of the Basle Committee, published in September 1997.

For the time being, the Bank of Albania operates based on the law no. 8269, dated 23.12.1997 "On the Bank of Albania" and law no. 8365, dated 02.07.1998 "On banks in the Republic of Albania", where the Bank of Albania is the sole authority that issues license and supervises all the banks in the Republic of Albania.

Both laws regulate banking system in the following directions:

1. Defining terms and conditions for the establishment of banks and branches of foreign banks in order to have an effective banking system;
2. Defining of the banking operations;
3. Supervising of the banking system;
4. Defining regulations with respect to bank custody and liquidation.

The composition of the banking system during 1998 was more complex from the point of view of ownership, activities, services they offer, and size of their network, etc. 10 banks operated in 1998, out of which 2 state-owned, 2 joint-ventures, 4 private and 2 branches of foreign banks. Notwithstanding these changes the influence of the state-owned banks still remained considerable.

Restructuring and privatization process of the two state-owned banks is still going on and according to the schedule the privatization will finish within 1999 for National Commercial Bank and within 2000 for the Savings Bank. In order to maintain the assets value of both banks and improve their activities and being prepared for the privatization process both banks have been under the management of foreign advisors.

The Bank of Albania is acting as an advisor and supervisor of the privatization and liquidation of the state-owned banks, by implementing a tight lending policy.

In the meantime, Bank of Albania through the strict implementation of the licensing requirements for establishing new banks aims at establishing a banking system based on sound private banks.

Second tier banks at end of 1998 were as follows:

1. National Commercial Bank (state-owned)
2. Savings Bank (state-owned)
3. Italian-Albanian Bank (joint-venture)
4. Arab Albanian Islamic Bank (joint-venture)
5. Dardania Bank (private bank)
6. Branch of National Bank of Greece (branch of foreign bank)
7. Tirana Bank (private bank)
8. International Commercial Bank (private bank)
9. Branch of Alpha Credit Bank (branch of foreign bank)
10. American Bank of Albania (private bank)

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