Governor Sejko: Address to the Parliamentary Committee on Civil Initiatives, Collaboration, and Institutional Supervision – On the implementation of the Assembly’s[...]

Honourable Chair,

Honourable Members of the Committee,

I would like to express my sincere gratitude for the opportunity to present, on behalf of the Bank of Albania, our assessment of the implementation of the Assembly's recommendations and the Bank's key developments during 2025.

This report fulfils the Bank of Albania's institutional obligation to present to the Assembly an assessment of the implementation of the recommendations set out in the 2025 Resolution, and outlines the measures undertaken, the progress achieved, and the results attained in the exercise of the Bank's mandate in the service of monetary and financial stability. For the Bank of Albania, this process is not just an annual reporting. It is part of an ongoing dialogue with the Assembly, whose recommendations guide our activity and priorities for the following year.

On this basis, today's report has been prepared in accordance with the Parliament's Resolution regarding its recommendations on the activity of the Bank of Albania for 2025, addressing these recommendations one by one. The purpose of this report is not merely to provide a list of measures but also to explain the reasons they were undertaken and how they contribute to stability, confidence, and sustainable development.

1. Monetary policy and the analytical framework

The Bank of Albania has continued to strengthen the basis upon which monetary policy decisions are made. The purpose is to ensure that monetary policy decisions are underpinned by more comprehensive data, deeper analysis, and more accurate forecasts.

Over 2025, the Bank of Albania has improved its macroeconomic forecasting process. It has expanded the database, improved the formulation of assumptions, and has enabled the use of more advanced analytical models. This has helped us obtain a clearer understanding of the sources of inflation, the nature, and consequences of external shocks, as well as how the monetary policy is transmitted to the economy.

The Bank of Albania expanded its analysis of core inflation, the exchange rate, the labour market, consumers' expectations, lending, and financial conditions. These indicators help us better understand the real economic situation and avoid decision-making based on one single figure.

Monetary policy during this period was guided by data and our main objective: maintaining price stability. Our decisions were based on a prudent assessment of inflation reading, risks, market developments, and the effects of interest rates on credit, consumption, and investment.

Our message is clear: monetary policy has acted with maturity, by supporting price stability, without losing sight of the economy. It has been a prudent and flexible policy guided by data and within the framework of our legal mandate.

Accordingly, inflation averaged 2.2% in 2025, remaining below but close to our 3% target.

Our forecasts suggest that inflation will remain close to the target over the policy-relevant horizon, while our monetary policy will remain fully committed to safeguarding price stability and fostering the conditions for sustainable long-term economic growth.

2. Coordination with fiscal policy

Albania being a small and open economy cannot build its stability on a single policy. It requires a well-thought-out combination of monetary and fiscal policy.

The European experience shows that an independent central bank with price stability as its main mandate is more effective when it operates in a stable fiscal environment. Monetary policy may reduce price pressures and maintain confidence in the national currency; however, its impact is greater when accompanied by budgetary discipline, structural reforms, and cautious management of public funds.

For the Bank of Albania, coordination with fiscal policy does not imply a mix of roles but rather a clear distinction of responsibilities and a continuous dialogue. In this respect, cooperation with the Ministry of Finance has continued through the exchange of information and analysis regarding the impact of fiscal policy on inflation, economic growth, and financial stability.

This cooperation is reflected through opinions on draft budget, analysis of public debt sustainability, and assessments of fiscal vulnerabilities. It is reflected in the macroeconomic forecasting process, where budgetary data are included in the Bank of Albania's projections, thereby supporting better coordination with fiscal policy.

Our institutional message is straightforward: monetary stability, financial stability, and sound public finances go hand in hand. A prudent fiscal policy renders monetary policy more effective. A credible monetary policy helps reduce uncertainty, lowers economic costs, and reinforces confidence among the public and financial markets.

The Bank of Albania will continue to exercise its mandate while preserving its independence and accountability, supporting a balanced policy coordination to supporting macroeconomic stability and bringing Albania closer to meeting the European Union's convergence criteria.

3. Exchange rate and international reserve management

The Bank of Albania operates under a free-floating exchange rate regime. The value of the lek towards the euro and other currencies is determined by the market. This regime helps the economy adapt to shocks and allows monetary policy to concentrate on price stability.

Since 2021, the lek has appreciated against the euro at a rapid and sustained pace. According to our analysis, this trend has been supported by higher tourism receipts, remittances, foreign direct investment, labour income, and an improvement in the economy's external position. These developments have brought a significant inflow of foreign currency and thus confidence in the lek has increased.

Lek's appreciation has helped reduce imported inflation, enabling the increase in prices to slow at a faster rate and at a lower cost to the economy.

The Bank of Albania's interventions in the foreign exchange market have been cautious. Their purpose was not to maintain the exchange rate at a certain level, but rather to mitigate excessive fluctuations and avoid risks to monetary and financial stability.

The Bank of Albania is confident that exchange rate flexibility is an optimal choice for the country's stability. In parallel, the foreign currency reserve has been carefully managed according to the principles of safety, liquidity, and return. At the end of 2025, the foreign exchange reserves reached EUR 7.3 billion, strengthening the country's ability to withstand external shocks.

4. Financial stability and banking supervision

The Bank of Albania has continued to supervise banks following a risk-based approach. Attention has been paid not only to the implementation of regulatory requirements, but also to actual risks that may affect banks and the financial system. The objective is to identify weaknesses at an early stage and to adopt corrective measures before they pose problems.

Credit concentration is one of the main risks. The Bank of Albania closely monitors exposures to large borrowers, specific sectors, and banks' ability to cover these exposures with adequate capital. In cases where limits are exceeded or weaknesses in risk management are identified, banks are asked to take measures, including increasing their capital.

As at end-2025, the banking sector recorded robust indicators. Non-performing loans dropped to 3.8%, the lowest level since 2008. Banks' capital was above regulatory requirements, liquidity was stable, and the sector was profitable. These indicators confirm that the banking sector has maintained the ability to support the economy through lending and to withstand shocks.

However, the Bank of Albania will continue to monitor the rise in loans for real estate, lending in foreign currency, sectoral concentrations, the quality of collateral, and balance between the maturities of banks' assets and liabilities.

Our objective is to ensure a sound banking system that protects public savings and supports sustainable lending, grounded in prudent standards, a thorough assessment of borrowers' repayment capacity, and sound risk management practices. The strength of a banking system is measured not only by the amount of credit it provides, but also by its resilience to the risks it takes.

5. Lending for real estate

The Bank of Albania considers increased lending for real estate as a potential source of risk to financial stability. When real estate prices increase at a rapid pace, banks and borrowers may become less cautious; when the cycle turns losses accumulate faster. As a result, the Bank has intensified the collection and analysis of data on mortgages, commercial real estate, construction, and real estate projects.

In May 2025, the Bank of Albania approved the caps for these two borrower-based measures: the loan-to-value ratio, which relates the amount of credit to the value of the real estate, and the debt service-to-income ratio, which measures the share of monthly mortgage payments relative to the borrower's income. Put more simply, banks cannot disburse loans at a value significantly higher than that of the property itself and cannot allow the monthly debt repayment to weigh on households' income. Caps are tighter for foreign-currency-denominated loans and for loans financing the purchase of residential properties for investment or rental purposes.

6. Climate risks and environmental, social and governance (ESG) factors

Risks related to climate change and environmental, social, and governance (ESG) factors are being gradually incorporated in the banking sector supervision in accordance with international practices and the obligations arising from the European Union accession process. The purpose is to identify and manage these risks in time as they affect borrowers' capacity to repay their loans, value of collateral, and the financial stability of banks.

Within the framework of the sectoral strategy, the Bank of Albania has set supervisory expectations and issued guidance to banks on the identification, assessment, and management of climate-related and sustainability risks. This stage is focused on heightening awareness, identifying sectors that are most exposed, and strengthening banks' capacity to better manage these risks.

The strategy envisages a more structured approach with regular reporting and supervisory inspections. Banks should develop internal methodologies to assess the impact of climate risks, incorporate them within their risk management frameworks, and report in a more standardized manner. This would support a clearer picture of the banking system's exposure and will support the gradual application of climate analysis and stress testing.

Furthermore, banks are encouraged to support stable investment and financing such as projects for renewable energy, energy efficiency, and economic modernization.

7. Alignment with the European Union regulatory framework

Alignment with the European Union regulatory framework and the Basel standards is an integral part of consolidating the banking system. Our purpose is to build a stronger system, which is better supervised and more credible: banks with higher capital, sound liquidity, good governance, and better risk management.

The European experience shows that banking stability requires clear rules, independent supervision, credible crises intervention mechanisms, and the protection of depositors. The main lesson is simple: problems must be prevented before they develop into crises.

In this framework, the Bank of Albania is advancing a package of legal reform. At the centre of this package is the new law on banks, which harmonizes the Albanian banking framework with European standards on supervision, governance, and financial stability. Its adoption will strengthen the regulatory and supervisory architecture of the banking system in Albania as well as the role of the Bank of Albania as an independent and reliable supervision institution.

In addition, the reform includes enhanced rules on capital requirements, large exposures, non-performing loans, recovery plans, intervention in crises, and deposit protection.

The alignment covers the digital field as well. A new regulatory act on digital operational resilience will provide Albania with European standards on cybersecurity and digital resilience. Meanwhile, we are awaiting the final equivalence assessment from the European Banking Authority. This assessment aims to prove that the regulatory, supervisory, and institutional framework is comparable to that of the European Union, not just in paper, but also in practice. Equivalence is proof of credibility: it opens the door to closer cooperation with the European authorities in the field of supervision, crisis management, and banking resolution. This process strengthens confidence in our banking system and aligns it with the European financial market. Ultimately, it shows that European financial integration is becoming an operational reality instead of just a political objective.

8. Supervision of non-bank financial institutions

The Bank of Albania has strengthened the supervision of non-bank financial institutions, focusing on: the effective implementation of new rules, improvement of loan quality, and better borrower protection. Our approach is based on the risk posed by each institution, business model, and impact on clients and financial stability.

The non-banking sector includes institutions providing a wide range of products and services, serving several types of clients, and presenting varying levels of risk. In this regard, our attention is concentrated on institutions that have rapid portfolio growth, high exposure to consumer lending or microfinances, concentration in specific market segments, as well as those institutions with portfolio quality and client treatment that require additional supervisory attention.

For the most part, our supervisory activities have focused on verifying the implementation of rules. The Bank of Albania has monitored lending policies, assessments of clients' repayment capacity, risk management, classification of loans, and internal controls. The quality of credit portfolio is monitored regularly through quarterly reporting. Where there are discrepancies, institutions are notified and required to take corrective measures.

On-site supervision has continued according to the purpose set to cover every institution within a five-year period. Examinations have assessed the implementation of rules, risk management, operational resilience, and internal governance. The necessary measures were taken in cases of non-compliance. In 2025, two licenses were revoked and the activities of one institution were suspended.

Borrower protection is at the core of our approach. The Bank of Albania has monitored the transparency of loan costs, interest rates, fees and commissions, penalties, and the consequences of payment failure. The objective is for the non-bank financial sector to expand access to finance without weakening credit quality, harming consumers, or undermining confidence in the financial system.

9. Cybersecurity risk and operational Resilience

The Bank of Albania considers cybersecurity risk an integral part of financial stability. Today, banks' safety depends not only on capital or credit quality, but also on their ability to protect digital systems and ensure the continuity of services in the events of cyberattacks. A cybersecurity incident may delay payments, disrupt critical services, and undermine confidence in the financial system.

As a result, the Bank of Albania continues to cooperate with the relevant institutions to update contingency plans for cybersecurity events. The objective is to ensure that banks and authorities act promptly, reduce damage, and maintain the continuity of key services in cases of attacks or interruptions. Being an essential part of the economy, payment systems receive special attention.

Another noteworthy step is the finalization of banks' cybersecurity self-assessments. The Bank of Albania has analysed the level of preparedness of the sector to prevent, withstand, and recover from cyber incidents. This exercise has provided us with a clearer picture of strengths and weaknesses. It will serve as the basis for further supervisory measures, improved controls, and enhanced cyber resilience across the banking sector.

At the national level, we have continued to cooperate with the Albanian Association of Banks and the National Agency for Cybersecurity, to strengthen the joint response and protect key infrastructure. In parallel, banks have been required to pay heightened attention to services provided by third parties, including technology providers. The higher the level of security in banks, the better protected payments are, and the greater the confidence citizens have in the continuity of financial services in the face of cybersecurity risks.

10. Financial integrity and the prevention of money laundering

Within its field of responsibility, the Bank of Albania has continued to strengthen its supervision to prevent money laundering and terrorist financing. This issue is related to the quality of governance in banks and financial institutions, the functioning of internal controls, public confidence in the financial system, and the coordination with other national and international institutions working in this area.

In this regard, we have cooperated closely with Financial Intelligence Agency through the exchange of information, supervisory coordination, and joint on-site inspections. The annual inspection plan sets out the institutions, high-risk areas, and measures that must be taken.

Supervised institutions have been required to rigorously implement the rules on customer due-diligence, verifying the source of funds, monitoring transactions, reporting suspicious transactions, and maintaining documentation.

Where discrepancies have been identified, we have required corrective measures, monitored their implementation and, when necessary, taken the supervisory measures provided for by the law. Developments in the European Union demonstrate that the fight against money laundering requires strong cooperation among authorities, accurate data, and effective controls. Within this framework, we will continue to protect the integrity and credibility of the financial system.

11. Foreign exchange bureaus

The Bank of Albania has strengthened its supervision of foreign exchange bureaus. This sector has a high exposure to risks related to the circulation of cash and has direct contact with the public. As a result, it requires closer monitoring, clear rules, and proper follow-up of transactions. For, controls focused on obligations regarding customer identification, transaction monitoring, maintaining documentation, and reporting suspicious transactions.

27 on-site examinations were conducted in 2025. The on-site examinations, depending on the case, are also conducted in collaboration with the Finance Intelligence Agency. In cases of non-compliance, the Bank of Albania has exercised supervisory measures, issued corrective recommendations and deadlines for their implementation.

More specifically, 201 penalties were imposed and 80 licenses were revoked following on-site and off-site supervision of supervised entities during 2025.

The Bank of Albania has continued its supervisory controls, focusing on high-value transactions, repeated activities, cases where client's profile does not correspond to the volume of transactions and the quality of supporting documentation. The objective is clear: greater transparency, higher accountability, and a safer foreign exchange market.

12. Payment systems and European financial integration

In the field of payments, the Bank of Albania has concluded a crucial step toward modernization: updating the national system and approximating it with European standards. This process has included the use of a new international standard which renders the exchange of payment data faster, safer, and complaint with the European standards. Furthermore, SEPA standards have been adopted for small-value payments, and new rules governing the functioning of payment systems.

Since 7 October 2025, electronic euro payments between Albania and participating SEPA countries are faster, cheaper, and subject to conditions comparable to those of domestic payments. This is a tangible step toward European financial integration and brings direct benefits to citizens, businesses, and the economy. Assessments by the German Economic Team (GET) indicate that membership in SEPA is expected to generate annual savings of around EUR 71 million for the Albanian economy.

The Bank of Albania has also reduced the cost of electronic payments in lek and euro. Electronic payments up to ALL 40,000 are free of charge for citizens, while fees for other payments have dropped significantly. These measures have made the use of electronic channels much easier, reduce dependence on cash, and encourage financial inclusion. In 2025, for the first time, cards were used more frequently to conduct payments than for withdrawing cash, marking an important change in public payment behaviour.

Looking ahead, we are working to review the Law on Payment Services to further align it with European Union legislation, and to build the TIPS Clone System, pursuant to the European Central Bank's model for an instant payment system, within the framework of Cashless Albania initiative. This will enable payments to become faster, cheaper, and safer. The modernization of payments is not merely a technical project, but also an integral part of the European Union integration and the modernization of the Albanian economy.

13. Financial disinformation and communication with public

The Bank of Albania sees financial disinformation as a risk to public confidence and financial stability. The dissemination of inaccurate information about banks, deposits, exchange rates, payments, or financial products may cause citizens and businesses to make misguided financial decisions. This can create uncertainty and actual costs on the economy.

The Bank of Albania's approach is based on three principles: more accurate information, greater explanation, and enhanced transparency. We do not aim to affect public debate, but to present clear facts regarding financial issues that affect citizens, markets, and financial stability.

For this reason, we have strengthened communication with the public and cooperation with government authorities, the banking sector, the media, academia, and financial education stakeholders. Within this framework, we have launched an awareness-raising campaign on financial disinformation, which includes explanatory materials in a simple language titled: "Myth or fact." We are also in the process of preparing a financial dictionary with the most frequently used economic and banking terms.

In parallel, we are working to improve transparency and inform the public. These measures aim to enhance confidence in the financial system, prevent panic arising from fake news and help citizens better distinguish facts from speculations.

Honourable Members of the Committee,

The Bank of Albania has treated the Assembly's recommendations not as a formal list of obligations, but as an integral part of its work to preserve monetary stability, strengthen financial stability, and support the development and modernization of the financial system. During this period, we have strengthened our analysis of the economy, enhanced the supervision of the financial system, improved risk management, reinforced the security of payment systems, advanced alignment with the European Union, and intensified our communication with the public. In every case, our objective has remained the same: greater stability, greater security, and greater clarity for citizens, businesses, and the markets.

Stability should never be taken for granted. It is built every day through prudent decisions, strong institutions, and transparent accountability. The Bank of Albania will continue to exercise its mandate with independence, accountability, and prudence, in the service of monetary and financial stability and Albania's European path. Because a credible central bank does not only safeguard price stability; it also safeguards the confidence on which the country's economy depends.

Thank you.