EBRD to provide Euro 100 mln loan to prevent bank failure

TIRANA, Oct. 1 – London-based EBRD, which is one of the largest investors in Albania’s private sector, says it is considering a standby credit line of up to EUR 100 million to the Albanian Deposit Insurance Agency (ADIA), fully guaranteed by the Government of Albania. The standby credit line is tailored to the needs of ADIA and is designed to be available in the event of a bank failure and to prevent an isolated bank failure causing systemic issues. The product is designed to enable ADIA to improve its deposit coverage ratio while it gradually builds up its own funds, providing better protection for depositors and improved confidence in the financial system as a whole.
A well-functioning deposit insurance scheme is an important part of the financial infrastructure that helps build public confidence in the banking system of a country and the stability of its financial system. This becomes even more important when customer deposits are a key source of funding for the banking system as it is the case in Albania. Furthermore, in the current global financial climate suffering from the on-going impact of the financial crisis an adequately established and well-funded deposit insurance is more important than ever, says the EBRD.
By providing support to ADIA through the proposed credit line the EBRD will contribute to further developing the financial infrastructure in Albania, increasing trust in the banking system and protection for small depositors through improvement of the deposit coverage ratio. This will contribute to the consolidation of the financial sector’s stability and the resilience of the banking system in case of any potential bank failure.
ADIA is a young independent public institution established by the special law “On Deposit Insurance” of 29 March 2002. Its task is to protect individual depositors and to pay out insured deposits in case of a bank failure with the wider objective to strengthen the stability of the banking and financial system in Albania.
A technical cooperation project of EUR 300,000 is in support of the credit line and aims to provide adequate software that will enable ADIA to automate pay-out to depositors. The project, co-financed by the EBRD SSF and the Government of Luxembourg, is being provided with close cooperation from the American Federal Deposit Insurance Corporation (FDIC).
As elsewhere in the region, Albanian banks witnessed substantial panic deposit withdrawals in the face of spillovers from instability of global financial markets, which were compounded by concerns about the health of the Greek banking system in the fall of 2008. Ample liquidity buffers were utilized to meet deposit withdrawals. To boost confidence, deposit insurance limits were raised fivefold to 2.5 million lek (25,000 US dollars), and deposits started to recover from the second half of 2009.