Page 36 - Annual Report 2022

RISK MANAGEMENT GROUP

In 2022 the key factor that marked the global
economy and financial markets was inflation. Most
developed and emerging economies experienced
decade-high inflation rates that resulted from the
disruption of energy and commodity markets due to
a mix of geopolitical and public health events. During
2022 the whole world experienced price increases,
initiated at first by pandemic-induced shortages and
later worsened by the geopolitical shock caused by
Russia’s invasion of Ukraine. Its immediate macro-
financial consequences increased uncertainties
about the evolution of the economy and financial
markets and elevated risks to the banking sector. To
restrain the inflationary wave, central banks tightened
monetary policy through higher interest rates and by
withdrawing policy-accommodative measures.

A potential intensification of geopolitical tensions
in the future, central banks overtightening interest
rates, energy prices, and China’s reopening may
further increase repricing risks in financial markets
and cyber threats. Overall, the evolution of the
economy and financial markets remains highly
uncertain, leaving more room for surprises on the
downside than on the upside.

Besides the more imminent risks triggered by the
geopolitical shock, structural risks (credit and
funding) and previously existing vulnerabilities also
require appropriate attention, such as addressing
challenges stemming from the development and
execution of digital transformation strategies,
deficiencies in operational resilience framework (IT
outsourcing), risk data aggregation and reporting,
and climate-related and environmental risks.
The Albanian economy is expected to grow in the
Albania was no exception, and during 2022 the future, although the growth rate is expected to slow
country operated in an economic situation where in the short term and increase towards its potential
high inflation and moderate-to-low economic in the medium term. In the first six months of 2022,
growth ruled. The annual inflation rate accelerated the activity of the banking sector was stable and
to 8.3% in October of 2022, the highest reading risks remained at contained levels. Deposits and
since December of 1998, while decreasing to 7.4%
in December. The Central Bank of Albania increased loans grew at a slower pace, while some indicators
the base rate five times this year, to 2.75%, reflecting of activity showed a higher volatility. Economic
its concern about inflation. The primary market of developments throughout the period were positive,
government debt instruments moved with an even although the effects of high energy prices and soaring
faster pace, where the maximum yield of 12-month inflation were more pronounced. Economic activity
Treasury Bonds for the beginning of December continued to grow in the second half of the year.
reached 5.85%, the highest in the last nine years However, similar to the first six months, the pace of
(since 2013). economic growth has shown signs of slowing down,