Banking system profitability in Albania

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Open Data Albania has conducted a study on the banking system profitability in Albania. The report is based on data obtained by the Bank of Albania and the study titled “ An anlysis of the risk and return of the Albanian Banking System” by Irini Kalluci.

The banking system is a very important part of the econamic and financial system and for this reason its development is of great interest. The Albanian Banking System began to develop according to a market economy strcture in 1992, when it was first created a two tier system: Central Bank and Secondary Banks. In 1992, there were three banks with state capital: Savings Bank, National Commercial Bank, and the Commercial Agricultural Bank. During the last 20 years there has been tremendous progress in the banking system, through the creation of new private banks, privatization of state owned banks, expansion of the banking network, improvement of bank related legislation.

The profitability of the banking system can be measured in several ways. The two main ones are:

• Return on Equity ( %), which measures the ratio of the bank’s yearly net income to its shreholder’s equity;

• Return on Average Assets (in %), which measures the ratio of the bank’s yearly net income to the average of the total assets

Net profit margin is a very important indicator which influences the two indicators above. It is measured as the ratio of net income to total yearly revenues. Starting with 2001, Return on Equity and Return on Average Assets has changed as shown below:


Source: Bank of Albania and the study titled “ An anlysis of the risk and return of the Albanian Banking System” by Irini Kalluci.
Analysis and Comments: Open Data Albania


As you can see by the graph, the profitability of the banking system has been subject to a tremendous decline during years 2008-2009. While during 2001-2007 the Return on Equity has been within 19-24%, in 2008-2009 it has fallen to 11.35% and 4.58% respectively. The same trend is valid for the Return on Average Assets.

The main factors for this decline are a lower profit margin, and the increase of shareholder’s equity (in order to capitalize the banks). Both these reasons have had a direct impact in the decline of the net income for the banking system.

Graphically the profit margin has changes as shown below:
 

Source: Bank of Albania and the study titled “ An anlysis of the risk and return of the Albanian Banking System” by Irini Kalluci.
Analysis and Comments: Open Data Albania


The net proft margin has declined during recent years for several reasons. Among them the main ones are:

•    Increased competition between banks;
•    Strengthening of the regulatory framework and capital requirements ;
•    Slower market expansion due to market saturation;
•    Global financial crises which was associated with slower crediting and deposit withdrawals.




Excel datasets : XML, N3 datasets :
    Contributer: RE
    Translated by: ODA
    Edited by: ODA