Notwithstanding the measures taken for the banking system transformation till 1997, when the collapse of pyramid schemes reached the climax, the banking system was not able to operate effectively in carrying out its intermediation function. Private banks, which consisted of small foreign banks or joint-stock banks and which did not have any subsidiaries, hesitated to extend loans and were focussed on foreign exchange transactions and trade financing. The state-owned banks were engaged in domestic lending, but they operated as government agencies, with soft restrictions in funds management and failed to apply the lending practices in compliance with international standards. Also, the Central Bank’s supervisory capacities of that time  BIS Review 115/2006  1  were limited. Some data indicate that the level of non-performing loans at end of 1996 reached to 60% of the total loan portfolio. Besides the weak performance in credit intermediation, the range of services provided to the public was also limited. Many of financial activities in the economy were carried out outside the licensed financial institutions. The financial infrastructure, including the payment system of accounting and audit was also rather weak. Lack of a formal operational banking system, associated with an insufficient structure of regulations and supervision, contributed to the flourishing of pyramid schemes. The 1997 events served as an encouraging element for deeper reforms in the banking sector. The government of that time, in cooperation with the International Community and the Bank of Albania, affirmed the commitment to implementing a full program of reforms needed for the banking system.
Naturally, opinion differs on the appropriate monetary stance at any given time, as uncertainty is a permanent feature of economic life – not only uncertainty about the future, but also about the present and the recent past. 6  BIS central bankers’ speeches