Albanian Bank health improves over the last five years

Over the past five years, the country’s healthcare index is improving. This indicator is calculated by the Bank of Albania and represents an overall assessment of the underlying conditions and risk factors that affect the stability of the banking sector and that of individual banks.

The index consists of five indicators: capital, asset quality, profitability, liquidity and efficiency. By the end of 2018, the banking health index was similar to the previous year, to 0.46.

The index’s index indicators, which showed better health last year, are capitalization, asset quality and liquidity. As a weight, the main contribution to risk continues to be the asset quality. However, the significant decline in the ratio of non-performing loans has contributed to the decline of the contribution of this indicator at risk in the past year. Positive contribution to the banking health index also provided a satisfactory level of liquidity and considerable expansion of capital adequacy.

The other two indicators, profitability and efficiency, have increased slightly, which means a higher risk to them. The bank’s decline in profit has given the main impact on the increased risk stemming from the profitability indicator, while the increase in the “income-to-income” ratio contributed to the increased risk stemming from the efficiency indicator.

By size, larger banks have lower index value, which implies a healthier and lower risk. This group includes four banks with more than 7% market share, measured by total assets.

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