The Weaknesses of the Albanian Banking System

Albania has inherited a one-tier centralized banking system from the socialist system. A Central Bank that had under its control two other banks: the National Commercial Bank and the Agricultural Commercial Bank. These banks had subsidiaries and branches throughout Albania. The monetary policies of this system were based on the application of direct monetary instruments such as loan limits, the deposits lower margin interest rates and the loans higher margin interest rate. The foreign currency was a monopoly of the Central Bank. After the ‘90s, the two-tier banking system was established in Albania. The Central Bank of Albania that was established had as its main objective “to achieve and maintain the price stability”. A number of commercial banks of the second-tier were established. The National Commercial Bank and the Savings Bank having entirely state-owned capital were privatized. The free movement of the Euro and the USD was allowed. Second-tier banks were allowed to accept deposits and to grant loans in foreign currency. The free movement of capital was allowed. Direct instruments were eliminated and indirect instruments were applied. The purpose of this study is to analyze the consequences of the change on the banking system, the transition from a centralized system to a two-tier banking system. The impact of the change in the areas of: economic growth, unemployment rate, inflation control, monetary base control, interest rates control in view of the dynamics of deposits and loans in Albanian Lek (“ALL”), exchange rate of the national currency, circulation of the national and foreign currency, role of national currency in the economic growth etc. By analyzing the above mentioned areas, we can determine the weaknesses of the new banking system established after the ‘90s as well as to express our views in relation to the ways and means to overcome this situation. DOI: 10.5901/mjss.2014.v5n4p87