MacroPrudential Supervision Lessons learned from the crisis Hilda

Macro-Prudential Supervision Lessons learned from the crisis Hilda Shijaku Financial Stability Department

Albanian Banking System n Banks operating in the market: n n 14 banks 2 branches of foreign banks n Activity: universal banking. n Major operations: n n n Deposits Loans Placements Treasury Bills & Government bonds Other foreign securities

Albanian Banking System n Proprietorship: Foreign capital Domestic capital – strongly prevailing – slightly taking over

Albanian Banking System

Albanian Banking System Presence of foreign banks: n Helped building of the entire system n Know-how brought in the country n Widely spread banking services (geographically) n New products offered n Supported the economic growth

Basel II § Not fully implemented § Pillar I – not implemented § § Pillar II – partially implemented. § § n Presently working on the implementation of Standardized Approach No regulatory framework in place. Actions taken in conform to the supervisory principles Pillar III – Partially implemented n There is a regulatory framework in place for publication of information

Lessons learned from the crisis § Crisis imported § § § Impact on banking system § § § First impact – confidence of the public Second impact – real economy Deposit withdrawal Liquidity drainage Decreased lending Increased NPL Impact on economy

Effects on banks balance sheets n n Initial state Dep withdrawal n n n How much dependent on mother banks? ? Stress tests Information and risk management systems not in place New regulation on liquidity management Credit growth n n Npl change in structure n n But only gradual Capital adequacy

FSI

The authorities response § Formal Measures taken § § § § Liquidity provided to banks through the use of reserve requirement (from 20% to 40%) Limited exposure to banks’ related parties (from 20% to 10 %) SC decision to stop dividend distribution of the 2008 and 2009 profit Decrease of the monetary policy rate ( 1% in January and October) Change in the auction form (Bo. A providing liquidity at a fixed rate) Increased deposit insurance coverage Requirements § § § Improvement of risk management practices Decisions based on prior analysis and stress-testing Maintain good level of capital adequacy at any time Continue lending policy to avoid pro-cyclical effects Smooth the impact on exchange rate regime

Lessons learned from the crisis § Evidenced weaknesses credit requirements in good times § Loose § risk management practices, structures & policy partially implemented § High exposure to foreign currency lending § Poor attention to macro developments

Lessons learned from the crisis § Strength § High liquidity § Good capitalization § Low exposure to foreign markets § Good support from mother banks