Higher capitalization of Albanian banks, more security but also challenge to raise the loan
The banking system capitalization has reached the level of 17.9% in the middle of this year. According to the Bank of Albania, the capital adequacy ratio of the banking sector has increased by one percentage point compared to the end of last year and is approximately 50% higher than the mandatory regulatory minimum of 12%. The improvement in the capital adequacy ratio has mainly resulted from the fall in the value of weighted assets with risk coefficients.
This relates to a lower risk of lending taken over by the banking system. It is related to the fall in the loan portfolio, but not only. This year, some of the regulatory measures were abolished, placing banks at higher risk rates for foreign investment.
This development was reflected in an increase in the capital adequacy ratio, which measures the regulatory capital of banks in relation to the total value of assets, weighted with risk coefficients. Although raising the level of capital adequacy is a positive development in the regulatory perspective, it also points to the challenge of an increase in the lending faced by the banking system. An excessively high capital adequacy ratio would also mean a declining efficiency of future investment and earnings.