Although Greek banks have withdrawn from the Albanian market in recent years, many Albanians who live permanently in Greece still maintain deposits in Albania’s banking system. This cross-border financial connection, along with geographic proximity and the continued presence of Greek businesses in Albania, gives recent findings by the International Monetary Fund (IMF) added relevance for Greece and the wider region.
In a newly released report assessing the condition of Albania’s banking sector, the IMF notes that the country has made significant progress over the last decade. Non-performing loans, which once made up about 25 percent of total loans in 2014, have dropped to under 5 percent as of the first quarter of 2024. The banking sector has also become less reliant on foreign ownership, with the share of foreign-owned banking assets falling from 90 percent in 2013 to 65 percent. This shift is seen as a positive step in reducing Albania’s vulnerability to financial shocks originating abroad.
The IMF finds that Albania’s banks are generally well-capitalized, with an average capital adequacy ratio of 19.3 percent—substantially above the regulatory minimum of 12 percent. Liquidity coverage also appears to be at acceptable levels, contributing to overall financial stability.
Despite these improvements, the IMF highlights several emerging risks. One of the most significant is the high level of exposure that Albanian banks have to government bonds. Albania ranks among the highest in Europe in this regard, and the IMF cautions that such a close link between banks and the state—often referred to as the "sovereign-bank nexus"—can amplify systemic risk. While government bonds are typically used as a reliable source of liquidity, the lack of a secondary market in Albania makes it uncertain whether banks could quickly sell these assets during times of financial pressure. This risk is somewhat mitigated by the ability of banks to access liquidity from the Bank of Albania, but the concern remains.
Another area of vulnerability lies in unhedged foreign currency loans, particularly those concentrated in the real estate sector. Over two-thirds of these loans are not protected against exchange rate fluctuations. With the real estate market seeing rapid credit growth and rising prices, the IMF warns that this could lead to heightened financial instability if market conditions shift.
The IMF also raises red flags about the banking system’s exposure to a small number of large borrowers. According to the report, if the two largest corporate clients of each bank were to default on their obligations, six banks—including one considered systemically important—would face capital shortfalls. The capital required to cover these losses would amount to approximately 0.5 percent of Albania’s GDP.
