In the meantime, credit risk is the main risk to which the banking sector remains exposed. This risk becomes even more present as a result of its persistence and continuous problems that banks face in the process of collateral enforcement. Following the rise in non-performing loans in the first half of the year and their fall in the second half, the ratio of non-performing loans to total loans fell to 18.2% at the end of 2016, at the same level as in the previous year. Therefore, the reduction of non-performing loans and creation of stimuli to boost sound lending has been and remains a priority issue for us. The Bank of Albania has worked in several aspects to address this problem. First, the assessment of the credit risk and the recoverability of non-performing loans have been subject to intensive monitoring during our on-site examinations. In parallel, we have maintained a prudent approach in assessing lending policies and practices applied by banks. Second, the Bank of Albania has fulfilled its engagements under the National Plan for the Reduction of Non-performing loans. In this regard, the Bank of Albania has made regulatory amendments to clarify the concept of non-performing loans write off and the administration of properties taken into ownership as a result of collateral enforcement. Moreover, the Bank of Albania has cooperated with the IMF to review the regulatory framework about the licencing of companies that purchase bad debt.
In contrast, the composite yield rate on Government bonds stood at 23.0%, up from 20.9% registered in 2004. As at May 29, 2006, the composite weighted average Treasury bill yield rate came down sharply to 6.5% while the composite yield rate on Government bonds declined to 11.0%. The sharp reduction in yield rates on Government securities has been due to low inflation expectations, coupled with high demand for these securities by Banks, the non-bank Private and Public financial institutions, and foreign portfolio investors. You may wish to know, Your Excellency, that there are no restrictions with regard to foreign participation in the Government securities market. With continued improvements in the macroeconomic environment, investor confidence is heightened with foreign portfolio investment in Government securities recording appreciable growth. Foreign portfolio investments in Government securities increased to K400 billion at end-December 2005 from K5.6 billion at end-July 2005. Distinguished Ladies and Gentlemen, with respect to developments in the money market, commercial banks lending rates have also been coming down, though not as fast as the decline in inflation and Treasury bills rates. Commercial banks nominal weighted average lending base rate declined from 29.8% in 2004 to 27.6 % in 2005. As at May 30, 2006, the weighted average lending base rates stood at 22.5%. Clearly, there is a need for commercial banks to do more to reduce lending rates in order to influence a substantial expansion of private sector credit. Lower lending rates will contribute to the reduction in the cost of doing business in Zambia.