The results of the capital adequacy test exercise for the 2023-2025 period show that the Albanian banking sector is resilient to macroeconomic shocks.
In order to assess the resilience of the banking sector to shocks from the real economy and financial developments, the Bank of Albania periodically performs resilience test exercises or stress tests.
The capital adequacy test shows the degree of resilience of second-level banks and the sector as a whole against assumed shocks to economic growth and unemployment, the loan portfolio, exchange rate performance, and changes in interest rates. The exercise contains three scenarios: baseline, moderate and severe, and the exercise period extends to the end of 2025.
The baseline scenario assumes a positive economic growth during this time line, which is accompanied by a positive increase in lending and a decrease in unemployment.
In the moderate scenario, economic growth remains on positive ground during the exercise period, but the growth rate is lower compared to the baseline scenario.
In the worst- case scenario, the assumptions are more extreme, including initially a positive growth rate, followed by an economic contraction.
In the moderate and the worst-case scenario, there are more assumptions for the devaluation of the local currency exchange rate, the increase of interest rates and the slowdown in the pace of crediting until it is curbed. These developments translate in a deterioration of the quality of the loan portfolio, both for individuals and for businesses.
The results of the stress tests show that at the end of the first exercise year, the banking sector remains well capitalized, regardless of the scenarios. The capital adequacy rate is 20% in the baseline scenario and drops to 19% in the worst-case scenario.