Bank of Albania strengthens measures for non-banking institutions

The Bank of Albania has announced significant changes to the regulation on “Operational Risk Management,” aimed at tightening oversight of non-banking financial institutions. The central bank is introducing enhanced measures to ensure better control and risk management within these institutions.

During a meeting of the Supervisory Council, Governor Gent Sejko confirmed that these regulatory changes are set to take effect in January of the coming year. Sejko emphasized that these adjustments will focus on interest rate policies and stricter criteria for approving loans, ensuring that credit lending practices are more responsible and transparent.

Why does it matter?

The recent regulatory changes by the Bank of Albania are crucial, especially following the 2023 microcredit scandal involving companies like MCA. Borrowers were deceived through hidden fees, manipulated property auctions, and excessive interest rates, causing financial distress. By tightening controls on interest rates and loan approvals, the new regulations aim to prevent such abuses and restore public trust in non-banking institutions. The focus on transparency and stronger financial assessments will protect consumers from predatory practices, ensuring a more stable and responsible lending environment, essential for Albania’s financial system.

One of the key changes involves stricter oversight of interest rates applied by non-banking financial institutions. These institutions, which often cater to consumers who may have limited access to traditional banking services, will now be subject to tighter controls, reducing the risk of excessively high interest rates that can lead to financial distress for borrowers.

Additionally, new criteria for loan approvals will be introduced, focusing on the financial health and risk profiles of borrowers. This means that individuals applying for loans from these institutions will undergo more rigorous assessments to ensure they have the capacity to repay, helping to prevent over-indebtedness.

Sejko also noted the strengthening of the Albanian lek, partly driven by tourism inflows, which has contributed to stable inflation levels and boosted the financial sector. However, he stressed the need for cautious lending, particularly in the microfinance sector, where the maximum interest rate formula is also under review. The Bank of Albania is collaborating with the World Bank to develop a new regulatory framework aimed at better consumer protection in this area.