Banking in Albania

Overview of banking network

Network banking is a form of banking system that allows bank transactions to all the network members bank around the country and the world. For example, a network member bank in Albania has an order from its client to transfer funds to a network member bank in the country. The transaction of transferring of funds will be carried out by the two banks and will be validated if it does not violate any banking laws such as money laundering.

Introduction

Banking network system is a very important part of the economic and financial system and, as such, the development of this network is of great Interest.^[1] Bank of Albania, as an independent legal institution, ensures the stability of the banking system and protects the interests of depositors and the general public. It also provides a sound banking system, whose activity is transparent and leads to an efficient market economy.

History

The Albanian Banking Network System began its development in 1913 with the establishment of the central bank, but the banking network started its real expansion after the fall of Communism, in 1992. Following the new capitalist market economy structure, this network was created into two tier system: Central Bank and Secondary Banks. In 1992 there was the Albanian Central Bank and three secondary banks formed with state Capital: Savings Bank, National Commercial Bank and the Commercial Agricultural Bank. In the following years there has been tremendous increase in the banking system, with the creation of the new private banks, privatization of the existing state owned banks and expansion of the banking network through the improvement of banking legislation.

Banking Network

The Albanian Banking Network System consists of the First Level Independent Bank of Albania which represents the central hub of the network. The role of Bank of Albania, as the central hub, is to ensure the well-functioning of this financial network. Bank of Albania is the central hub because all the second level banks, micro financial institutions and other financial institutions, that represent the nodes of the banking system, are required by law to report at the central bank.^[2]

The Role of the Central Bank

The mission of Banking supervision is:

• to promote stability of the banking system and to protect the interests of depositors and the general public;
• to ensure a sound banking system whose activities are transparent to and governed by market economy;
• to provide an environment of confidence for investors and depositors while enabling growth and profitability for the industry.

The role of banking supervision is to promote safety and soundness by ensuring that:

• to insure, through licensing process that only fit and proper owners and management, that fulfill the legal, professional and thic requirement have the right to enter in the banking market; who have adequate capital in line with the risks to be undertaken, and have operating policies and procedures to control those risks;
• to insure that existing banks operate soundly in accordance with law and regulations, have adequate capital and liquidity for foreseeable needs, maintain satisfactory asset quality and adequate resources to offset perceived risks, exercise international standards for best practice in the management of their activities, and conduct their affairs in a manner that is nor harmful to clients and general public;
• to insure that banks with problems are resolved quickly and efficiently in a manner that protect depositors to fullest extent possible, minimizes the cost to Government and public.

To fulfill this role, banking supervision:

• drafts and revises regulations governing entry to the system, prudential operation of banking activities while in the system, monitors the results, achieved, receivership and conservation-ship of banks, and enforces compliance with those laws and regulations;
• establishes pro-active policies and strategies for the supervision of individual banks and banking system that are based upon an assessment of inherent risks;
• develops supervisory procedures, standards and guidelines that are consistent with international practice;
• implements those procedures, standards and guidelines consistently;
• assures that adequacy of staff in terms of number and proficiency to properly supervise the industry;
• sponsors and participate in regular communications with the industry and other supervisors on matters of common interest or concern.

Basically, the central hub of this network ensures the well-functioning of the network.

An expanding network

The nodes of this banking network are represented by the central hub, Bank of Albania, 16 nodes representing all Second Level Banks,^[3] 17 nodes representing non-banking financial institutions, 289 nodes representing Foreign Exchange bureau Unions of save and loan, and 3 nodes of associations for a total of 325 nodes.^[4] One should not forget that all these institutions (nodes) have their headquarters connected with the central hub, Bank of Albania, while being the central hubs for their own branches. An example can be National Trade Bank (BKT) that as of 2014 has 61 branches of its own (nodes),^[5] so the number of nodes in the network might reach and surpass 1000 nodes as these financial institutions keep expanding their network by adding new nodes in the system.

Centrality is crucial in the Albanian Banking Network System, as each network depends on their central hub respectively, defined by the headquarters or the central bank.

The sixteen private owned banks form a complex network of Albanian Banking system. Adding to that, interbank network is present and functional in Albania, as ATMs are functional for money withdraws or transactions among banks.

Network analysis

A paper by a group of scientist from New England Complex System Institute, called “Networks of Economic Market Interdependence and Systemic Risk", studies the dynamic network of relationships among corporations that underlie what are termed “cascading economic failures” (cascading failure being common to many complex systems). This paper, using network analysis, presents research that strongly confirms what many of us have thought all along, namely that the clustering of financial services in the wake of the repeal of Glass-Steagall in 1999, and the rapid rise of universal banks in the wake of that repeal, made our financial system much more vulnerable to collapse.^[6]

Albanian banking network system is not well integrated into the international financial system. This has been considered a weakness of the economy for quite long time but in these gloomy days of global crises it saved Albania for being affected.^[7]

References

External links

• – Central Bank of Albania – Bank of Albania
• Albania Banking Information