Credit Risk Management for Banks in Albania

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The Bank of Albania has issued a regulation on credit risk management for banks in Albania. This article summarizes the main points of the regulation.

Credit Classification

Banks must classify loans into five categories:

• Standard (Good): Loans with a low risk of default.
• Special Mention (Watch List): Loans that require close monitoring due to potential credit risks.
• Substandard (Doubtful): Loans where the borrower’s financial position is uncertain, and there is a risk of default.
• Doubtful (Loss Potential): Loans where the borrower has a high risk of default or loss.
• Loss (Unrecoverable): Loans that are considered unrecoverable.

Classification is based on factors such as:

• Borrower’s financial position
• Repayment history
• Guarantee
• Credit guarantee

Provisions for Credit Losses

Banks must calculate provisions for credit losses using a table with different provision rates for each loan classification:

Provision Rates

Credit Balance Estimation Form

Banks must complete a credit balance estimation form for each customer, including information such as:

• Loan type and term
• Guarantee obligation given to the bank
• Total unpaid amount (principal and interest)
• Financial position of the borrower
• Repayment history

Reporting Requirements

Banks must submit reports to the Bank of Albania on a quarterly basis, including information on credit balance estimation forms. The Bank of Albania may request additional information or explanations from banks.

Sanctions for Non-Compliance

Violations of this regulation will be addressed by the Bank of Albania based on Articles 44 and 45 “On Violations and Sanctions” of the Law No. 8365, dated 02.07.1998, “On banks in the Republic of Albania”.

Effective Date

This regulation enters into force 15 days after its publication in the Official Gazette of the Republic of Albania.