At the beginning of this year, the International Monetary Fund (IMF) suggested to the Bank of Albania the implementation of a counter-cyclical capital buffer for the banking sector.
 |
| Bank of Albania by drone, March 2022 |
In the recent statement by the Executive Board for Albania, it was suggested that the implementation of a counter-cyclical buffer in the capital adequacy ratio for commercial banks could be considered in the medium term to further strengthen financial stability. However, in its latest decision, the Bank of Albania did not find such a measure necessary, as Monitor reports.
In the decision dated April 2, 2024, Governor Gent Sejko decided that the counter-cyclical capital buffer should remain at zero.
The application of a counter-cyclical capital buffer is provided for in the 2018 regulation "On macroprudential capital buffers." Such a buffer aims to slow down lending in case the central bank assesses that it is growing too rapidly.
The primary indicator in the Bank of Albania's assessment regarding the pace of economic lending and the need for possible counter-cyclical capital buffers is the credit-to-GDP ratio deviation from its long-term trend, which is the key indicator signaling the potential for excessive credit growth relative to Gross Domestic Product.
This threshold would be exceeded if the credit-to-GDP ratio deviation exceeds two percentage points.
For instance, during the period 2002-2008, which included the phase with the highest credit growth in Albania, this deviation was positive at 1.9 percentage points.
According to the Bank of Albania, for the fourth quarter of 2023, the credit-to-GDP ratio deviation was -7.84 percentage points, compared to -8.12 percentage points in the previous quarter.
Several other elements grouped under the early warning indicator (EWI) also serve as complements to this primary indicator in the Bank of Albania's decision-making. These elements signal developments in lending and non-financial assets, specifically the market for non-financial assets.
Suggestions for the application of a counter-cyclical norm from the IMF appear to be based precisely on the performance of these indicators.
These include the annual growth of bank credit, the annual change in bank credit for non-financial assets, the annual change in the housing price index, and the annual change in the housing price index relative to rent.
At the end of the fourth quarter of 2023, the value of the EWI index resulted in 0.54, an increase from the previous quarter's value of 0.51 and comfortably above the comparative historical average (0.5).
Developments in the period reflect a further acceleration in the annual and quarterly growth rates of the credit portfolio for non-financial assets. Consequently, the values of the indicator significantly surpassed the historical average. However, the Bank of Albania still does not deem it reasonable to apply further increases in capital adequacy requirements, which have increased significantly since 2019 with the implementation of macroprudential buffers.