Strengthening the capitalization of banks / BoA increases the ratio of financial leverage to 5.75%

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The Bank of Albania has taken measures to strengthen the capitalization of the banking system, to ensure that commercial banks in the country are as protected as possible from possible shocks.

The new regulation drafted by the BoA, which enters into force in 2021, is in the process of strengthening regulatory capitalization requirements and provides for the establishment of a new regulatory parameter for commercial banks, the "Financial Leverage Report".

This indicator is calculated as the ratio between the first tier capital and the total exposures of the bank.

"The first tier capital includes the paid-up capital of the bank, stock premiums, period and retained earnings, as well as reserves. The ratio of financial leverage must be at least 5,75%, both on an individual basis and at a consolidated level for the financial group ", the BoA regulation quotes.

While another recently proposed draft regulation, the one on consolidated supervision, provides that the ratio between tier 1 capital and risk weighted assets will increase from 4.5% to 6,75%, while the ratio between tier 1 capital and Risk exposure increases from 6% to 9%.

The situation created by COVID-19 testified to the importance of the good level of capitalization that banks should have.

The BoA announces that the capital adequacy ratio, according to the latest official statistics for March, was 19.1%, significantly higher than the minimum requirement of 12%.

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