The capitalization of the banking sector reaches the highest historical level

2023-11-13 07:33:00, Ekonomi CNA

The capitalization of the banking sector reached the highest historical level in the third quarter of this year.

According to the Bank of Albania, the capital adequacy ratio reached 19.63%, from 19% in the previous quarter and 19.3% in the same period last year.

The capital adequacy ratio is the most important regulatory parameter for the banking sector and the main indicator of banks' ability to withstand possible future losses. It measures the value of the regulatory capital of the banking sector in relation to the value of assets weighted with the relevant risk coefficients.

The increase in the capital adequacy ratio compared to the previous quarter came from the significant increase in the regulatory capital of the sector, while on an annual basis the increase is mainly the result of the decrease in the value of risk-weighted assets.

The value of the regulatory capital of the system reached 186.2 billion ALL, 4.3% more compared to the previous quarter, and in a value similar to the same period last year.

The increase in interest rates and keeping under control the indicator of problem loans have had a positive effect on the performance of the banking sector this year. According to the figures of the Bank of Albania, the net profit of the banking sector for the 9th month reached the value of 22.7 billion ALL, an increase of 77% compared to the same period of the previous year.

The growing profits have also increased the sector's capital, but at the same time, it has created space for dividend distribution, a factor that mainly explains the lack of growth in regulatory capital compared to the same period a year ago.

The value of assets weighted by risk coefficients at the end of September reached ALL 948.1 billion, increasing by 1% compared to the previous quarter, but decreasing by 2.3% compared to the same period a year ago. The annual decline in the value of risky assets is largely related to the strengthening of the Lek and the decrease in the value of the loan portfolio in foreign currency.

The banking sector in Albania has historically had high capitalization levels, due to the conservative regulatory line followed by the Bank of Albania. The minimum required threshold is 12%, while for certain banks the demand has been even higher during the last decade. With the entry into force of the macroprudential capital allowances, the required minimum levels of capitalization have increased even more.

The significant increase in the capital adequacy ratio in recent years is mainly related to the strengthening of regulatory requirements.

In addition to the basic requirement of 12%, provided for in the "Capital adequacy" regulation, since 2019 macroprudential capital allowances have also started to be applied. The capital conservation allowance for all banks in the sector for 2022 was 1.5%, while by the end of 2023 the increased level of 2% must be met. Meanwhile, for the four systemically important banks, a special surcharge is also applied, in the values ??of 0.5%, 1% and 1.5%, depending on the grade of systemic importance of the bank.

The largest banks in the sector this year will face a further increase in capital requirements, because they are subject to meeting the minimum requirement for regulatory capital instruments and accepted liabilities (MREL), according to the regulation approved by the Bank of Albania in December 2020. This regulation is related to the new framework brought by the law "On extraordinary recovery and intervention in banks".

By the end of 2023, these banks must meet an additional 1.5% in the overall capital adequacy ratio. Currently, this obligation has entered into force for four banks of systemic importance, Banka Kombëtare Tregtare, Banka Credins, Banka Raiffeisen Albania, Banka OTP Albania, as well as for Bank Intesa Sanpaolo Albania. Taking into consideration the above additions, as well as the specific addition that some banks in the sector have, the limit of the required capital adequacy ratio varies between 16% and 19% for systemically important banks, and 14% and 17% for banks of others./ Monitor magazine

The capitalization of the banking sector reaches the highest historical level