Selected Issues Papers

Stress Testing the Albanian Banking Sector: A Decade Post-FSAP

By Jakree Koosakul, Eugena Topi

April 16, 2025

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Jakree Koosakul, and Eugena Topi. "Stress Testing the Albanian Banking Sector: A Decade Post-FSAP", Selected Issues Papers 2025, 039 (2025), accessed April 22, 2025, https://doi.org/10.5089/9798229007603.018

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Summary

Over the past decade, the Albanian banking sector has undergone a remarkable transformation amid strong macroeconomic performance and sound financial reforms. Nevertheless, pockets of vulnerability remain, including some that were identified during the IMF’s 2014 Financial Sector Assessment Program (FSAP). To assess the resilience of the Albanian banking sector, this paper conducts capital adequacy and liquidity stress testing exercises using supervisory bank-level data. The results indicate banks’ broad resilience to shocks arising from non-performing loans and interest rates. On the other hand, vulnerabilities owing to large-borrower and sovereign exposures are found to be material in some cases. Relatedly, while banks are found to have adequate high-quality liquid assets under liquidity stress scenarios, such resilience hinges importantly on their access to the Bank of Albania’s liquidity facility. Such results call for further strengthening of the macroprudential toolkit and continued efforts to deepen financial markets.

Subject: Asset and liability management, Capital adequacy requirements, Commercial banks, Credit risk, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Financial sector stability, Liquidity, Liquidity requirements, Loans, Market risk, Nonperforming loans, Stress testing

Keywords: Albania, Banking sector, Capital adequacy, Capital adequacy requirements, Commercial banks, Credit risk, Exchange rate risk, Financial sector stability, Large exposure, Liquidity, Liquidity, Liquidity requirements, Loans, Market risk, Nonperforming loans, Securities markets, Sovereign-bank nexus, Stress testing, Stress testing

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