Financial Crime World

Albanian Banking Sector: Navigating Regulatory Compliance

The banking sector in Albania is subject to a robust regulatory framework aimed at maintaining the stability and integrity of financial institutions. The comprehensive legislative package includes the following key pieces of legislation:

  • Law no. 8269, “On Bank of Albania,” as amended
  • Law no. 9662, “On banks in the Republic of Albania,” as amended
  • Law no. 133/2016, “On the recovery and resolution of banks in the Republic of Albania”
  • Law no. 133/2013, “On the payments system”
  • Law no. 55/2020, “On the payments services”
  • Regulation no. 14/2009, “On the licensing and performance of the activity by banks and branches of foreign banks in the Republic of Albania,” as amended
  • Regulation 59/2008, “On the transparency of the financial and banking services,” as amended
  • Regulation 67/2015, “On the internal audit system,” as amended
  • Regulation 69/2014, “On the regulatory capital of the banks,” as amended

The Bank of Albania (BoA) is the primary regulatory body responsible for enforcing these laws and regulations. Its key competencies include:

  1. Issuing licenses for banks, branches of foreign banks, and non-bank financial institutions.
  2. Preparing and enacting the regulatory framework.
  3. Supervising and auditing financial institutions.
  4. Serving as the resolution authority for banks licensed in Albania.

Authorisation

Entities wishing to provide banking services in Albania must secure a license as a bank from the BoA. Banking services include accepting deposits, granting credits, lending, and offering various financial services such as factoring, leasing, guarantees, investments, and money transfers.

The licensing process is a two-stage procedure:

  1. The applicant provides the necessary documentation to the BoA, such as details on the identity of the shareholders and a business plan.
  2. Once the BoA issues its prior approval, the applicant proceeds with incorporating the entity, paying the initial capital, recruiting staff, and opening branches. In the second stage, the BoA performs an inspection and issues the final banking license upon verification of the fulfillment of the conditions.

Foreign banks can only operate in Albania on a branch basis and must comply with additional licensing requirements. There is no restriction on foreign ownership of Albanian banks, but potential shareholders must meet specific requirements, such as having a good reputation and sufficient experience in the banking sector.

Regulatory Capital and Liquidity

Banks in Albania are primarily funded through client deposits but are increasingly relying on medium and long-term bonds to meet regulatory requirements. Recent regulations, such as MREL, have encouraged the use of regulatory capital instruments and eligible liabilities.

Banks must maintain adequate capital and own funds to support their operations and absorb potential losses:

  • Minimum capital requirements: 12%
  • Minimum Tier 1 Capital Ratio: 6%
  • Minimum Common Equity Tier 1 Ratio: 4.5%

Albania follows the Basel III framework with some deviations in the leverage ratio requirement.

Reporting, Organizational Requirements, Internal Governance, and Risk Management

Banks in Albania are required to report regularly to the BoA, with reporting forms consisting of second-tier bank reporting forms, consolidated supervision forms, and interest rate forms.

Governance Structure The governance structure for banks in Albania consists of:

  • Board of Directors
  • Shareholders’ assembly
  • Executive directorate
  • Control committee

Company law provisions apply to banks, with exceptions in the areas of financial stability and public interest. Limits on exposure to related parties and subsidiaries must not exceed 10% and 25% of the regulatory capital, respectively. The BoA closely monitors these limits and determines the necessary measures if they are exceeded.

Risk Management The following regulations address risk management in various areas:

  • Credit risk
  • Operational risk
  • Market risk
  • Systemic risk
  • Liquidity risk

Banks must comply with anti-money laundering and terrorist financing regulations, including requirements related to customer due diligence, customer and transaction screening, and suspicious activity reporting. The Financial Intelligence Unit (FIU) plays a key role in monitoring and reporting suspicious transactions.