Particularly, this stand for: independence, transparency and accountability. It is well recognized by foreign and domestic institutions that legal and real independence status of Bank of Albania enjoys satisfactory standards. On the other hand we believe that independence represents a dynamic rather than a static process, therefore we have adopted contemporaneous practices of communication explaining our decisions to Albanian public. This process is embodied in the continuous improvement of the monetary policy report, standard communication of the supervisory board monetary policy decisions, improved analyses and research efforts, and last but not the least, intensive public activity of the Bank of Albania Governor, with various groups of interest across the country. Taken together these have improved public understanding and expectation building for current and future developments in inflation and economic activity. Our approach to communication has further improved our accountability and has resulted in increased credibility and authority within Albanian public. During the past 2-3 years we have increased our ownership in the short and medium run economic and financial development programs. Since the beginning of transition the economic program has been designed and implemented under the setup of IMF support programs. The current program will end in 2008. Starting from 2009, the Bank of Albania and other Albanian authorities will have full ownership in the design and implementation of financial and monetary policies. In the meantime our relationship with IMF will continue under Article IV, moreover the IMF assistance will be considered a welcomed secondary factor.
If the build up in credit risk is underestimated, foreign banks will tend to set overambitious ROE targets. When the extent of underestimation is recognized, banks have to increase their provisioning rate in line with their upward reassessment of credit risk, reducing ROE projections. This could lead management of large foreign bank groups to conclude that their ambitious ROE targets cannot be met and curtail lending growth in response. The entrance of big international foreign groups puts upward pressure on the entire banking system attempt to compete for borrowers. However, there is a risk that credit growth is associated with lower lending standards, enhanced by the lack of financial information available on potential borrowers that continues to be a problem in the region. As the FSAP for Albania indicates, in the area of corporate lending, firms balance sheets and income statements may be altered to avoid taxes, while information about remittance income for individuals is imprecise and unverifiable. The rising real estate prices in the region have also encouraged lending, using the real estate as collateral to a great extent. As real estate prices continue to rise, this could lead to an over-extension of credit, and if the real estate market becomes more speculative and more leveraged through bank loans, a decline in demand can cause a fall in real estate prices, causing both collateral to fall in value, and the ability of borrowers to pay to decline.