Page 38 - Annual Report 2023

38 BANKA KOMBËTARE TREGTARE

The Albanian economy has exhibited a good resilience and also interest rate risk in the banking book (IRRBB)
to the adverse shocks caused by the rapid upsurge are covered. For the above expected risks, the bank
in prices in global markets, originating from the war in took measure to decrease credit and counterparty risk
Ukraine. Albanian Economic activity has been growing appetite mainly in investment grade counterparties
in the first half of the year, enabling an increase in while decreasing duration of the portfolio but ensuring
employment and wages and an improvement in the viability of the operations. These measures had direct
financial position of enterprises. On the other hand, effects on decreasing IRRBB while functioning in a
inflation continued to come down during the third very good quantitative counterbalancing capacity and
quarter of the year, recording an average rate of a long term well diversified funding capacity.
4.1%. However, this decline was slower than the rates
recorded in the first half of the year and lower than The failure of a number of medium-sized US banks and
BoA expectations. In particular, domestic inflationary the takeover of a Swiss bank once again highlighted
pressures continue to remain relatively strong, fueled that banks need strong internal governance and
by the high demand for goods and services and the effective risk controls to cope with a dynamically
rapid growth in production costs. BKT forecasts for the evolving risk landscape. The bank failures also stressed
outlook remain relatively moderate. the importance of a timely and effective response and,
if needed, escalation, whenever banks’ practices
For this reason, the bank took measures to rebalance appear inadequate and remediation slow. Against this
the security portfolio towards sovereignty and background, BKT took immediate measures in order
decrease duration with the aim of staying liquid. to evaluate as much as possible lessons learned in
Globally higher risk premia may lead to a further March and April 2023. All the hidden effect from the
repricing of financial assets and new episodes of high HTM in IRRBB and HQLA are quantified against effect
financial market volatility. Against this background, it in capital and counterbalancing capacity.
is essential to maintain and keep enhancing credit risk As digital transformation has become a priority for
and asset and liability management (ALM) frameworks, many banks seeking to remain competitive, even
ensuring, for the latter, both liquidity and funding risks for BKT it is essential to have adequate safeguards