The loan aims to strengthen the financial sector regulatory and supervisory regime and mitigate vulnerabilities of the bank and non-bank sectors, says the World Bank.
TIRANA, May 19 – Two months after the IMF approved a three-year Euro 331 million soft loan to assist the Albanian government pay off accumulated unpaid bills, the World Bank has become the second international financial institution to lend US$ 100 million to support the Albanian economy with a loan on financial sector modernization.
“The loan aims to strengthen the financial sector regulatory and supervisory regime and mitigate vulnerabilities of the bank and non-bank sectors. It supports the government’s reform agenda by addressing key challenges across the financial sector,” says the World Bank about the loan which has a maturity of 22.5 years including a grace period of 7 years.
The new loan comes after the Albanian government has signed a new three-year deal with the IMF after the country’s economy has sharply slowed down in the past couple of years, with GDP growing by 0.4 percent in 2013, the lowest in the past 15 years and the forecast for 2014 at 2 percent.
A better developed financial sector contributes to stability, reduces the impact of financial crises, which can take a huge toll on economic growth and supports poverty alleviation, says the World Bank. Specifically, the loan supports reforms in three broad areas. The first area focuses on strengthening the regulation and supervision of the banking sector and improving the financial safety net. These efforts are expected to improve banks’ crisis preparedness and enhance the deposit insurance framework.
The second area supports speeding up the resolution of non-performing loans (NPLs). As result of these measures, the ratio of NPLs is expected to fall considerably by early-2015. Reducing NPLs will safeguard financial stability and better enable banks to respond to credit demand.
The third area focuses on strengthening the regulation and supervision of non-bank financial institutions. This seeks to strengthen the operational independence and capacity of the Financial Supervisory Authority, allowing it to regulate and supervise the non-bank financial institutions (NBFIs) more effectively.
“The Albanian financial sector authorities have undertaken significant reforms to mitigate vulnerabilities in the financial sector,” says Mike Edwards, lead financial sector specialist in the World Bank’s Europe and Central Asia Region and Task Team Leader of this operation. “We are encouraged by the financial sector authorities’ commitment to continuing and deepening reforms to improve non-performing loan management and resolution, the deposit insurance framework, insurance market development, public debt management, and the regulatory and supervisory framework for investment funds.”
Albania’s banking system remains well capitalized, liquid and provisioning appears to be adequate but high financial euroization, low profitability and non-performing loans being the highest in the region are a significant risk to the banking system, says the IMF in its financial system stability report after an IMF mission visited Albania in late 2013 at a request by Albanian authorities.
Albania became a member of the World Bank in 1991. Since then, 74 projects totaling US$1.3 billion have been supported by IDA and IBRD, and 49 projects totaling US$225 million by the IFC. The World Bank’s current portfolio in Albania consists of six projects in social assistance, infrastructure, water, energy, and land administration. These are contributing to Albania’s efforts to achieve sustainable economic and social development and pave the way for European integration.
