For 2014, we think that the banking industry should better support the private sector, considering that:  •  IMF’s agreement with Albania will mitigate government’s need for borrowing;  •  Public arrears to the private sector are expected to begin to be paid off shortly;  •  Worsening financial ratios in the banking industry imposes the gradual return to lending to the private sector, in order to improve the generation of income. Second, I would like to underline the need for the significant improvement of technical capacity and structures for risk management. In this regard, your decision making should include analytical assessments of the performance of your institutions against various scenarios. This is a requirement stipulated in the existing regulatory framework, which we will monitor with additional caution over the next year. In our view, this element constitutes a bank management quality indicator. Sparing the details, I would like to emphasize that the Bank of Albania will continue to provide the necessary support for all these processes. We appreciate the professional and direct cooperation with you, as an important element to comply with the requirements of the supervisory and regulatory framework. Moreover, the IMF’s agreement and additional financial support from the World Bank and the European Union will contribute to restoring the country’s long-term economic stability, translating the macroeconomic stability into higher economic growth rates.
It is whether they can convince investors that it is safe to provide them with funding at reasonable spreads over Bank Rate without central bank support. As the Financial Policy Committee (FPC) noted in its recent Review, UK banks are still some way from being able to convince the market in this respect. Regulators, who from 1 April will be in the Bank of England’s new Prudential Regulation Authority, are now working hard to ensure that banks are making adequate provisions for future losses, the likely costs of regulatory penalties and compensation to customers, and stating the riskiness of their assets in a more prudent way. A lesson from past crises, and also from this one, is that it is important to act now rather than hope that problems will go away of their own accord. As the FPC said last December, it is likely that banks will be required either to raise more capital or to restructure their businesses or exposures, and the FPC will review the position in March. There is no single remedy appropriate to all banks. With proper implementation, there is no reason why the two banks with significant state shareholdings could not largely be back in the private sector within a relatively short period. After all, in the United States banks that received state support are already back in private hands. Restoring our banking system to full – and transparent – health is only one of the structural changes that will be necessary to rebalance the economy.