I hope that over the course of this two-and-a-half days' conference, the deliberations, emerging from the experts and audience on a wide array of supervision-related issues, will shed more light on how best to deal with weak banks and systemic crisis. All banking supervisors and central bankers seek the “Holy Grail” aspiration for a stable financial system which is resilient and capable of returning to a balance after a shock. To fulfill this common goal, let me repeat a golden principle of sound banking supervision - prevention is fundamental to avoiding a banking crisis. We all know that handling a crisis is always very difficult and painful; therefore, supervisors and bankers have a shared responsibility and accountability to prevent banking problems. Supervisors must create a sound framework, foster a robust and effective system, and establish clear procedures to identify and deal with weak banks. This means the supervisors must be equipped with the legal power to effectively carry out their duties and have the necessary tools, resources and capacity to solve the problems. These are the necessary infrastructure or building blocks of a sound and stable financial system. Equally important, the Board and management of individual banks must shoulder the responsibility of monitoring and addressing bank weaknesses. They cannot fail in their oversight and risk managerial duties, just as supervisors cannot fail in their on-site and off-site supervision. In this respect, I am a strong believer that good governance is the corner stone of a stable financial sector.
This enabled a fast transmission of monetary policy signals to the interbank and deposit markets. Also, the increase in deficit and public debt was absorbed by the liquidity generated in the domestic financial market. Against the backdrop of a high demand for investment in government securities, their yields dropped significantly for all maturities. All these developments created premises for credit interest rates to decline in 2013. Monetary indicators were largely in line with the real-economy developments. The annual money supply growth slowed down during the year. This slowdown reflected the weak demand for borrowing by the private sector, especially businesses. Lending to the private sector started to contract in the second half of the year. At the end of the year, the loan portfolio stood 1.4% lower than a year earlier. Similar to developments in the other countries in the region, this performance was influenced by economic agents’ reluctance to spend and invest, and banks’ more conservative lending policies. I will dwell on lending issues and measures taken by the Bank of Albania to boost lending in the following. Summing up the performance of the economy for 2013, aggregate demand remained weak and economic growth was low but below potential. This economic slowdown had serious implications for the economy’s health and balances. It affected public finances, which saw increase in budget deficit and public debt. Albanian businesses faced financial constraints and banks’ balance sheets suffered from worsened non-performing loan portfolios. It also led to a higher unemployment rate and slower rise in wages and prices.