1. Introduction
Albania’s European Union accession process has reached a decisive stage. With all 33 negotiating chapters formally opened, the country has moved beyond the symbolic phase of candidacy and entered what many policymakers describe as the “moment of truth”: the phase in which institutional capacity and credibility are tested in practice. In this context, the financial system occupies a central role. Its ability to intermediate capital according to European standards is a key indicator of Albania’s overall readiness for integration into the EU’s internal market.
Historically, Albania’s convergence efforts in finance were assessed largely through legislative alignment. The transposition of EU directives, the adoption of new laws and the formal strengthening of supervisory mandates constituted the backbone of earlier reforms. Today, however, the benchmark has shifted. European integration increasingly hinges on whether these frameworks function effectively in real time: whether banks lend sustainably, payment systems reduce transaction frictions, supervisors enforce standards and financial institutions can absorb shocks without public intervention.
This shift from formal compliance to performance is particularly significant for Albania because of the structure of its financial system. Banking institutions account for the overwhelming majority of financial intermediation, while insurance, pensions and capital markets remain comparatively underdeveloped. As a result, the resilience of banks have disproportionate importance for economic stability and growth. Any weakness in these areas would not only undermine investor confidence but also slow convergence with European productivity and income levels.
Recent developments suggest that Albania’s financial system is entering this phase from a position of relative strength. The operational integration into the SEPA, the strengthening of bank capital and liquidity positions and the acceleration of credit growth alongside declining non-performing loans point to a system that is increasingly aligned with European norms not only in design, but in outcome. At the same time, the authorities are preparing for a more demanding regulatory cycle, including supervisory equivalence with EU institutions, new resolution frameworks and the extension of risk-based supervision beyond the banking sector.
This article examines Albania’s financial system at this turning point, through insights gathered by Blue Europe at the Financial Times’ CEE Forum 2026 in Vienna.
2. Financial infrastructure and banking system
The credibility of Albania’s financial convergence rests not only on regulatory intent but on the day-to-day functioning of its core financial infrastructure and banking system. In Vienna, the discussion consistently linked infrastructure reform – particularly in payments – with balance-sheet strength and lending capacity, presenting them as mutually reinforcing elements.
Blue Europe met with Albania’s Deputy Minister of Finance Endrit Yzeiraj, where we discussed about the future of the country’s European integration and the economic challenges associated with it. When asked about the evolution of spreads and risk perception, he highlighted the substantial improvement in Albania’s macroeconomic situation in recent years, pointing in particular to the reduction of fiscal deficits and a decline of nearly one percentage point in spreads over the past four to five years. The Deputy Minister also emphasized, on his own initiative, the issue of Albania’s European integration, describing it as a firm commitment that reflects not only a political choice shared across the political spectrum but also a concrete requirement of economic policy. In his view, Albania stands to gain far more from integration into the European Union than from remaining outside it, and many of the country’s current challenges cannot be effectively addressed through other means.
For instance, Albania’s operational entry into the Single Euro Payments Area marked a decisive step in aligning the country’s financial infrastructure with that of the European Union. Bank of Albania Governor Gent Sejko characterised SEPA as a structural reform with immediate economic effects, arguing that Albania is already “touching the benefits” through lower transaction costs, faster settlement and higher security for euro payments. Initial projections pointed to approximately €20 million in savings in the first year, yet early evidence suggests that the realised gains are exceeding expectations.
These gains are amplified by the structure of the Albanian economy. Over the past decade, GDP has expanded from roughly €10 billion to around €25 billion, supported by tourism, foreign direct investment and remittance inflows. Deputy Minister of Finance Endrit Yzeiraj explained that the improvement in fiscal balances and overall economic conditions has been driven by several factors, including better tax collection, the introduction of new management systems and the implementation of an e-invoicing framework similar to those used in other European countries. Two sectors were singled out as key drivers of economic growth. The first was information technology, where historical linguistic and cultural ties with Italy have facilitated the development of call centres and offshoring activities, contributing to the emergence of a more independent ICT sector. The second was tourism: Albania was among the European countries with the fewest restrictions during the Covid period in 2021, which generated significant international visibility and prestige for both the government and the country, and attracted a substantial number of visitors.
Each of these channels generates significant cross-border euro transactions, making payment efficiency a relevant issue. By embedding Albanian banks within the same payments framework as the Eurozone, SEPA effectively removes a layer of friction that had long separated Albania from the EU’s financial core. Governor Sejko emphasised that SEPA was the result of a three-to-four-year legislative and institutional effort. The process began with transposing EU payment directives, followed by the adoption of a new payments law and a comprehensive set of bylaws modernising Albania’s payment systems.
Beyond cost savings, SEPA carries a signalling effect. Governor Sejko described membership as evidence that Albania’s financial “plumbing” is now indistinguishable from that of the Eurozone, strengthening confidence among European partners and investors. In his analogy, SEPA’s impact on money flows mirrors the earlier liberalisation of movement for people: faster, cheaper and more predictable transactions constitute a form of financial liberalisation that deepens Albania’s integration into the European economic space.
Capital strength, liquidity, credit growth and banking profits
Infrastructure reform has coincided with a strengthening of the banking sector’s balance sheets. Governor Sejko described Albanian banks as “well capitalised and over liquid,” citing a capital adequacy ratio of around 21% and a loan-to-deposit ratio close to 50%. These indicators suggest that banks are operating with substantial buffers and unused lending capacity, a critical consideration as EU-aligned prudential requirements become more demanding.
This balance-sheet strength has underpinned a notable turnaround in credit dynamics. Only a few years ago, annual lending growth of 3-4% was considered dynamic yet insufficient to support broader economic objectives. Today, lending growth has accelerated to 14-16% per year, reflecting stronger demand and improved confidence in the banking system. Importantly, this expansion has been accompanied by a decline in non-performing loans to around 4%, indicating that credit growth is being driven by healthier fundamentals rather than excessive risk-taking.
From a convergence perspective, these trends matter because they challenge a common accession-related concern: that tighter regulation inevitably suppresses credit. In Albania’s case, policymakers argue that strong capitalisation and liquidity provide the space needed to absorb additional regulatory requirements without constraining lending. The banking system’s ability to expand credit while improving asset quality is therefore presented as evidence that stability and growth are not mutually exclusive.
Underlying both infrastructure reform and credit expansion is sustained profitability. Governor Sejko noted that the banking sector has been “very profitable,” creating favourable conditions for strengthening capital buffers ahead of EU-driven requirements. “It’s a good momentum to capitalise profits,” he said, pointing out that many banks are already retaining earnings to increase capital year by year. The authorities are encouraging banks to build resilience organically through retained earnings. A banking-sector intervention echoed this logic, stressing the need to remain profitable while “capitalising our profits because of increased requirements,” especially for large institutions subject to higher supervisory expectations.
3. EU alignment and Albania’s supervisory transformation
As Albania’s financial infrastructure and banking balance sheets have strengthened, the focus of reform has shifted decisively toward the prudential and supervisory framework that underpins them. In Vienna, the authorities presented EU alignment as a process of institutional transformation that aims to embed European supervisory logic into the daily operation of the financial system.
A cornerstone of this transformation is Albania’s pursuit of supervisory equivalence with the European Union. Governor Gent Sejko stated that the process of aligning Albania’s banking supervision with European standards has been completed domestically, and that the authorities are now awaiting formal recognition from the European Banking Authority, expected in the first half of 2026. This step carries tangible economic implications. Once equivalence is recognised, European-owned banks operating in Albania will be treated as lower risk from a supervisory standpoint, which, as Governor Sejko emphasised, “will increase lending capacity for them into the Albanian economy”.
In fact, this equivalence can be seen as a lever to mobilise additional balance-sheet capacity – particularly from foreign banks – into domestic investment and growth.
Alongside equivalence, Albania is building the more complex elements of the EU prudential architecture, notably in the area of bank resolution and systemic risk management. Governor Governor Sejko described the establishment of a dedicated resolution unit following the approval of relevant legislation, as well as the introduction of minimum equity and liquidity requirements linked to the resolution framework. These measures are already translating into requests for additional capital from banks, signalling a gradual but clear tightening of prudential expectations.
The authorities are also preparing to introduce additional risk buffers that have not yet been fully implemented. These buffers are designed to absorb shocks arising from credit expansion, cross-border exposure and macroeconomic volatility, aligning Albania’s supervision with that of the EU and the European Central Bank. Governor Sejko stressed that these measures are intended to safeguard the system’s resilience rather than restrict banking activity, arguing that capital and risk requirements should “protect the financial industry” without creating obstacles to lending.
Governor Sejko further noted that the basic capital adequacy requirement – currently around 12% – could be revised downward to 8% with the adoption of new legislation. However, he made clear that this does not imply a loosening of prudential standards. On the contrary, additional EU-aligned requirements and buffers are expected to keep overall capital ratios high in practice. This approach mirrors the EU model, where risk-based buffers, rather than nominal minima, define the true supervisory stance.
These prudential changes are being underpinned by a comprehensive overhaul of Albania’s financial legislation. Governor Sejko explained that the authorities are not merely amending existing laws, but rewriting the core legal framework governing the banking sector, including a new law on banks and a new law on the Bank of Albania. This legislative transformation is accompanied by extensive external engagement. Governor Sejko cited technical assistance and monitoring from the IMF, World Bank, EBRD and the European Commission, reflecting the complexity of the reforms. Equally important is the governance philosophy guiding these reforms. Governor Sejko emphasised that changes to the regulatory framework are being developed in close consultation with the banking sector and “not forced.”
To stress the broad importance of legislative change and alignment with EU practice, Deputy Minister Yzeiraj was clear that while macroeconomic indicators have improved markedly, considerable work remains in technical areas such as food and water security. These challenges are largely unrelated to macroeconomic or financial performance and instead reflect regulatory and technical requirements, which explains why European integration remains a gradual strategic long-term goal.
4. Finance as a driver of growth for Albania
While prudential alignment and financial stability form the backbone of Albania’s strategy, the government’s approach places equal emphasis on the financial sector as a driver of structural economic growth. Delina Ibrahimaj, Minister of Economy and Innovation, framed financial reform not as a self-contained policy domain, but as an instrument to accelerate investments.
In Minister Ibrahimaj’s assessment, the EU accession agenda is inseparable from economic transformation. “The EU integration reforms that we are implementing are mostly economic transformation reforms,” she argued, stressing that finance is “an integral part of each and every process” underpinning productivity growth. Firms require financing to modernise and expand, foreign direct investment depends on a credible and efficient financial system and sustained growth ultimately hinges on the ability of financial intermediaries to allocate capital.
Focusing on growth, Minister Ibrahimaj described the EU’s Growth Plan for the Western Balkans as the outcome of a detailed assessment of the convergence gap between Western Balkan economies and the European Union. The diagnosis was straightforward: productivity levels, investment rates and access to finance in the region lag significantly behind EU averages, and without targeted intervention, the gap risks becoming structural. The Growth Plan was therefore conceived as an instrument to “speed the process of reforms, increase productivity, and increase investment,” while reinforcing the EU integration trajectory.
Crucially, Minister Ibrahimaj emphasised that the Growth Plan is highly conditional. Access to financing is tied to concrete reforms across multiple dimensions, including improvements in the business climate, support for SMEs, modernisation of production structures and the adoption of legislative strategies covering exports, industry and innovation.
Within this framework, the creation of a Development Bank represents one of the most significant institutional innovations in Albania’s financial landscape. Minister Ibrahimaj explained that the bank is expected to begin operations this year and will initially be 100% publicly owned, with scope for private shareholders to hold up to 49% in the future. Its design reflects a deliberate effort to complement, rather than compete with, the existing banking sector.
The Development Bank is structured as a wholesale institution, not a retail lender. Its promotional function is clearly separated – also in accounting terms – from any commercial activities, ensuring transparency and compliance with EU state-aid principles. Minister Ibrahimaj stressed that the bank “will not be a competitor to the financing sector,” but instead a platform through which public and European resources can be channelled efficiently into the economy.
The bank’s primary role is catalytic. It is intended to attract and deploy a wide range of European-level financial instruments, including risk-sharing facilities, guarantees, grants, innovation funding, blended finance and equity-type instruments. Many of these tools are difficult to absorb directly through conventional budgetary mechanisms.
Minister Ibrahimaj identified several strategic corridors through which the Development Bank and the broader Growth Plan are expected to operate. Green and sustainable investments occupy a central place, reflecting both national priorities and EU climate objectives. The domestic banking sector has already begun offering green financing instruments, and the Development Bank is expected to reinforce this trend by supporting projects that align with environmental and sustainability goals.
A second corridor focuses on innovation and new financing models. Here, the objective is to crowd in private capital by reducing risk and improving project viability. The Development Bank is expected to work alongside commercial banks, venture capital funds and other investors, using guarantees or co-financing structures to unlock investment in sectors where market failures currently constrain access to finance.
A third corridor links directly to fintech and financial innovation (see Section 5), reinforcing earlier government initiatives aimed at reducing financing costs and improving access to capital. By supporting innovative financial instruments and platforms, the authorities hope to integrate Albanian firms more deeply into European value chains and prepare them to compete within the single market.
5. Albania’s non-bank financial markets
Even as Albania’s banking sector remains the dominant financial intermediary, EU accession places increasing emphasis on the depth and maturity of non-bank finance. In the European system, insurance markets, pensions, investment funds and capital markets play a significant role in savings mobilisation, risk sharing and investment financing. Albania’s convergence therefore depends not only on the stability of banks, but on the gradual expansion and Europeanisation of these adjacent markets.
A central pillar of this strategy is the promotion of financial innovation. Minister of Economy and Innovation Ibrahimaj openly embraced her reputation as Albania’s “Minister of Fintechs,” arguing that the country’s current status outside the EU provides a window of regulatory flexibility. The government’s objective, she explained, is to uphold European standards in security and consumer protection while remaining agile enough to attract and pilot innovative financial solutions.
This approach is reflected in ongoing work on a new law on crypto-assets, which includes provisions for a regulatory sandbox. The sandbox is intended to allow controlled experimentation with new financial technologies, enabling firms to test innovative products under supervisory oversight. Minister Ibrahimaj suggested that Albania could position itself as a testing ground for solutions that might later be scaled or exported to EU markets, turning regulatory flexibility into a comparative advantage.
Digitalisation extends beyond fintech startups. The government has also launched the “cashless Albania” initiative, which Minister Ibrahimaj described as a tool not only for modernising payments, but for reducing informality, increasing transparency and lowering transaction costs across the economy. The initiative also seeks to curb shadow-economy activities.
In parallel with innovation policy, the government is seeking to diversify the structure of financing available to Albanian firms. Minister Ibrahimaj noted that while bank lending remains central, it is insufficient on its own to support an innovation-driven growth model. New forms of financing – particularly equity-based instruments – are needed to support startups and high-growth firms that may not fit traditional credit profiles.
To this end, the government is preparing legislation to regulate venture capital and similar investment vehicles. Although such investments are not explicitly prohibited in Albania, Minister Ibrahimaj pointed out that the absence of a clear regulatory framework has effectively prevented their development. By clarifying rules and investor protections, the authorities aim to “crowd in private capital” that currently remains underutilised, expanding the financing options available to the real economy.
Structure and scale of Albania’s non-bank sector
Adela Xhemali, General Executive Director of the Albanian Financial Supervisory Authority, was explicit about the starting point: the non-bank financial sector remains “quite modest.” In aggregate, all non-bank subsectors account for around 5% of GDP, highlighting the degree to which Albania’s financial system is still overwhelmingly bank-centred. Within this total, insurance represents roughly 2.2% of GDP and includes more than 13 locally established companies.
Despite limited size, the insurance market has demonstrated steady expansion. Director Xhemali cited a compound average growth rate of more than 10% over the past decade, suggesting both increasing demand and a widening supervisory agenda. Yet the market remains structurally concentrated: motor third-party liability insurance still accounts for almost 70% of premiums, even though its weight has declined somewhat over time. This composition reflects limited product diversification and points to significant untapped space for broader insurance penetration – even for foreign insurance companies wishing to establish local branches in the country.
Director Xhemali noted that other segments – capital markets, investment funds and pension funds – are closer to EU alignment in regulatory terms, but are similarly constrained by modest scale. For accession purposes, their underdevelopment is both a risk and an opportunity: a risk because EU membership expects deeper, more liquid markets; an opportunity because regulatory convergence could unlock growth and attract long-term capital if institutions and governance frameworks mature.
The most transformative reform in the non-bank space is Albania’s planned move toward Solvency II in insurance supervision. Director Xhemali explained that Albania is currently Solvency I compliant, meaning that the system is largely rule-based and focuses on minimum capital requirements. Solvency II introduces a fundamentally different logic: it is risk-oriented, requiring insurers’ capital needs to reflect a much broader set of risk factors and balance-sheet realities. In her words, under Solvency II “all the other elements of the assets will be reflected in the need for capital,” which implies that insurers “will have to have more capital”.
As with other legislative reforms that we have previously seen, Albania is pursuing a sequenced transition, rather than a sudden switch. Director Xhemali said the authority has already begun integrating selected Solvency II elements into supervision and is working with the World Bank on a detailed roadmap. The timeline she outlined is set to have new EU-compliant laws expected by 2027, followed by an implementation window from 2027 to 2030 during which firms will have time to adjust and increase capital. She described this process as “very transformative” for the market, not least because the adoption of risk models and capital recalibration will change both supervisory practice and corporate balance-sheet strategy.
A key preparatory tool is the quantitative impact assessment currently being carried out with World Bank support. This exercise uses existing financial statements to estimate capital needs under Solvency II and identify gaps. Director Xhemali noted that the assessment will be repeated after the relevant law passes Parliament – targeted for early 2027 – providing a structured pathway for capital planning and regulatory implementation. Importantly, she emphasised that the work is also a capacity-building exercise for both the supervisor and market participants, ensuring that the transition builds knowledge and operational capability rather than remaining purely formal
Finally, for Director Xhemali, the convergence of non-bank finance is ultimately a question of institutional capacity. She identified two major constraints shared by both the authority and market actors: capacity building and digitalisation. The “huge gap” with EU practice requires investments in expertise, supervisory systems and governance. Digitalisation, meanwhile, is essential for effective oversight, consumer protection and risk monitoring – but demands both time and financial resources
At the same time, she framed the reform path as a potential advantage for investors. Albania’s non-bank markets are underdeveloped, but they are moving toward EU-grade standards. For long-term investors, this combination can be attractive. In other words, the reforms are not only about meeting accession criteria; they also aim to create the conditions for a deeper and more diversified financial system that can attract foreign capital.
