Albania will undergo a financial sector assessment program after 12 years

2026-01-16 07:43:00, Ekonomi CNA

Albania will undergo a full Financial Sector Assessment Program (FSAP) after 12 years, jointly carried out by the International Monetary Fund and the World Bank.

Anke Weber, head of the International Monetary Fund's mission for Albania, said in an interview with "Monitor" that the assessment will be conducted during 2026 and will analyze in depth the resilience of the financial sector to shocks, identify hidden vulnerabilities and assess the effectiveness of financial regulation and supervision, ensuring that Albania's financial system remains strong in the face of emerging challenges.

The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country's financial sector.

In developed economies, the FSAP is carried out by the IMF, with a focus on assessing the soundness of the financial sector, the quality of the regulatory and supervisory framework, and the capacity to manage and resolve financial crises.

In developing economies, FSAP is carried out jointly with the World Bank.

Based on their findings, FSAP programs produce recommendations of a micro- and macro-prudential nature and recommendations on development needs, tailored to country-specific circumstances.

The FSAP program comes at a time when Albania has further advanced in the European integration process. In particular, the coming years will be important for the full approximation of the legal and regulatory framework with that of the European Union.

At the end of last year, the Governor of the Bank of Albania, Gent Sejko, announced that in the period 2026-2027, the legal and regulatory framework of the banking sector will be fully aligned with that of the European Union. The Governor said that, in this process, the understanding and cooperation of the banking industry is necessary, so that the changes are adopted correctly and the benefits materialize as soon as possible.

Meanwhile, referring to the FSAP program, Sejko said that this assessment will serve as an international certificate for the quality of the general legal and sub-legal framework, supervisory practices and risk management for financial activity, while simultaneously identifying gaps and guiding towards necessary improvements.

FSAP 2013 Recommendations

The last FSAP program for Albania was conducted in 2013, while the IMF published the main findings and recommendations in early 2014.

At that time, the financial sector in the country was in different circumstances than today, especially under the pressure of the non-performing loans crisis.

One of the main recommendations of the FSAP was to intensify efforts to address the rapid increase in non-performing loans. Following a plan of measures by the government and the Bank of Albania, non-performing loans gradually decreased and are now close to their lowest level in the last 16 years.

Another FSAP recommendation was to reduce systemic risks stemming from large holdings of government securities by banks and investment funds and to develop the secondary securities market, with the aim of reducing liquidity-related risks.

In this regard, the changes to date have not been very significant. Government securities continue to account for more than a quarter of banking sector assets, while the secondary market remains underdeveloped.

The FSAP also recommended addressing the risks of the high use of the Euro. In particular, to mitigate the risks and mitigate the costs of using the Euro, the FSAP recommended that the authorities increase minimum loan-to-value ratios for foreign currency loans and apply a higher liquidity requirement for foreign currency deposits compared to that applied to deposits in Lek.

The Bank of Albania responded to these recommendations with a package of measures to reduce the Euroization of the financial sector, but nevertheless the results in terms of de-euroization have been modest to date.

The FSAP recommended that banking supervision should be strengthened, by improving risk-based supervision (including more intrusive assessment of credit risk management in banks), expanding consolidated supervision, formalizing cooperation with domestic supervisors, increasing supervisory staff, and enhancing their legal protection.

The FSAP also recommended improving the supervision of non-bank financial institutions, requiring the authorities to undertake a major reform of the AFSA to ensure its financial and operational independence and transform it into an effective regulator of investment and pension funds, as well as the insurance market. /Monitor