Nonperforming loans rose moderately in the second quarter of this year (to 11.9% of total private sector credits), but the growth is continuously slowing, and they are fully covered by loan loss provisions (RM is within the group of countries with largest LL provision coverage ratio). Profitability is lower but positive, and profits are being used largely to strengthen capital buffers. The euroization of deposits continues to decrease gradually to below pre-crisis levels (44% of total deposit are FX deposits or with FX clause). Even though the banking sector is in overall sound shape, the credits developments are not favorable and supportive to companies. The reasons for deceleration of the credits growth are on both sides, but mostly relay on supply side. Banks are likely to remain risk averse in an environment of low interest rate margin and the group strategies limit the credits’ growth potential. Thus, although the banking system mainly relies on domestic sources of funding, the consolidation of the Euro zone banking system and the EC pressure on troubled European banks that have received international bailout to sell their subsidiaries in the region, are the potential source of risks. The slow realization of this process could cause confidence shocks in our economies, thus endangering financial stability. The latest Deleveraging and Credit Monitor well notes this process, it says -while past efforts were focused on raising capital on the market, future efforts are expected to emphasize the sales of assets and affiliates.
Given the similarity of the financial systems, the SEE region as a whole faces similar challenges also sharing the common concerns. This raises considerations for stronger regional cooperation as important tool to effectively address future challenges. The recent Bank of Albania’s initiative for region’s joint participation within Vienna Initiative 2.0, advocated by the Bank of Albania as Steering Committee member, can be considered as a huge step forward in building consistent cooperation framework. In it’s very first joint initiative, the region focuses on homehost coordination including the confidentiality, cooperation and exchange of information between supervision authorities in the home and host countries, the need for EU banks to adequately adapt their strategies to local needs in host countries as well as some coordination issues among non EU host countries and ECB/SSM. The NBRM strongly welcomes this joint cooperation initiative hoping for it to highly contribute toward strengthening region’s effectiveness in tackling various future problems that concern as all. BIS central bankers’ speeches  3