Meeting of the Financial Stability Advisory Group December 29, 2021
The Financial Stability Advisory Group (FSAG) met on December 29, 2021. The meeting was chaired by the Minister of Finance and Economy, in the presence of the Governor of the Bank of Albania (BoA), Chairman of the Board of Directors of the Financial Supervisory Authority (FSA), Managing Director of the FSA, Managing Director of the Deposit Insurance Agency (DIA), as well as other representatives of these institutions.
The agenda focused on the most recent assessments by the current authorities on developments in the institutions and markets they oversee.
In its presentation focused on the assessment of the financial situation of the banking system in 2021, the Bank of Albania stressed that the developments were positive and reflected the resilience of the economy in the face of the impact of the pandemic. Financial markets performed well, with interest rates remaining low and not very volatile. The banking sector has considerably developed its activity, thanks to a strong growth in deposits which have been directed towards interbank investments, securities and loans. NPLs fell to around ALL 41 billion, lowering the NPL ratio to 6.2% in November 2021. Strong credit growth also contributed to the decline in the NPL ratio. Market risk indicators did not show any pronounced changes during the year. The banking sector’s resilience to risks is assessed as strong, because the liquidity situation is very good and the banking activity is profitable and well capitalized. The continued improvement in credit quality, months after the expiry of the Bank of Albania’s regulatory support measures, is encouraging. Despite this, in 2022 the Bank of Albania will pay special attention to the analysis of non-performing loans through dedicated supervisory actions in the banking sector.
As part of the analysis of systemic risks related to the structure of the economy, the Bank of Albania presented an analysis built on the national financial accounts and the interconnection between institutional sectors. The Albanian economy has a net debt position to the rest of the world, as liabilities are greater than assets. This position is affected by the negative net positions of non-financial corporations (businesses) and general government, while the positions of households and financial corporations made a positive contribution. On the basis of this structure and by evaluating the financing flows between sectors, indicators highlighting the risks linked to the position of certain sectors can be constructed. In addition, in order to control these risks, measures within the framework of economic and financial policies can be taken to reduce the negative net positions. The Bank of Albania performs this analysis not only for the institutional sectors of the economy, but also for the main segments of the financial system. In this context, the members of the FSAG considered that inter-institutional collaboration to this end would be very useful.
Excessive use of foreign currency in the economy, frequently as a means of payment, remains a major source of financial risk and reduces the effectiveness of economic and financial policies. For this reason, FSAG members discussed the need and the possibility that measures to reduce the use of foreign currencies and strengthen the use of national currency, currently concentrated in the banking sector, also be considered. with care for the real sector of the economy. In this regard, the members of this meeting are committed to institutional collaboration, which can also be helped by the expertise sought from international financial institutions.
The FSA briefed the members of the FSAG on developments in the legal and regulatory framework, as well as the performance of the financial markets it oversees. As part of strengthening convergence with the best standards in this area, FSA representatives highlighted the approval of some important laws, including: âon compulsory insurance in the transport sectorâ; âIn the capital marketsâ; âOn collective investment undertakingsâ; âIn financial markets based on distributed ledger technologyâ; and the preparation of the bill “On private pension funds”. Work on drafting the relevant statutes has progressed. The presentation highlighted the evolution of voluntary pension funds, investment funds and the retail securities market. In the latter, transactions between households and the preference for short-term government debt securities dominate. Regarding the insurance market, the representatives of the FSA underlined the increase in gross premiums paid during the year but also the faster growth of indemnities. Compulsory auto insurance dominates the market structure, having the highest share in gross written premiums. Overall, these segments of the financial markets have demonstrated resilience and strong business growth despite the impact of the pandemic. In addition, FSAG members discussed issues related to inter-institutional collaboration to improve the functioning of these markets.
DIA representatives regularly attend FSAG meetings. During this meeting, representatives of the DIA presented the performance of deposits in banks and savings and credit associations (SLA). Over 2021, insured deposits increased both in banks and in SLAs. Overall, household savings continue to dominate insurable deposits, with foreign currency deposits accounting for just over half of these. By maturity, term deposits dominate insurable household deposits, while deposits from entrepreneurs and trading companies are concentrated in current accounts. In line with the performance of insured deposits, the deposit guarantee fund is up compared to the previous year. The deposit insurance premium payments by banks and SLAs as well as the management of financial assets by the DIA have been the source of financing of the insurance fund during the previous year, as provided by law in normal situations. In view of the pandemic conditions and taking a cautious approach, DIA reinforced these sources with the line of credit made available by the European Bank for Reconstruction and Development and guaranteed by the government of the Republic of Albania.
After the discussions on the issues set out above, the senior officials of the institutions positively assessed the developments in the financial system, financial markets and the relevant regulatory framework, affirming the stability of the financial system. The pandemic has not affected this stability. They stressed the importance of monitoring financial developments, as the economic situation and public health face ongoing challenges.
At the end of the discussions according to the agenda, the senior officials representing the participating institutions approved this press release and authorized its publication.