The Albanian economic system: institutional design, competition and opportunity from the banking market

On 13 of July 2008, in Paris, Nicolas Sarkozy launched an initiative to establish the international body “Mediterranean Union” to promote co-operation amongst Euro Mediterranean member-countries. Among the activities undertaken to promote the economic development and to reduce the risks of being infected by the present economic-financial world crisis, great emphasis was placed on the sustainability of fiscal policy, market privatization and liberalization and also on financial stability policies and support for small and medium-sized enterprise. Assuming that on the one hand an easier access to credit allows small enterprises to develop and contribute to the economic growth of a country and on the other hand that only an efficient banking system lays the basis for an easier access to credit, in this paper we will concentrate mainly on the Albanian banking system and we will estimate the efficiency and competition with special attention to the aspects of production. An efficient banking system that allows for a proper credit allocation and a suitable payment system will become a priority aim for all the Eastern European countries that have passed through a transition period from planned economy to market economy. In the specific case of Albania, during the period of transition, there was also the problem of infrastructure. Compared with other Eastern European countries, Albania experienced a particularly centralized and repressive communist regime which produced an entrenched backward level of production structures and living standards. The isolationist policy followed by the communist regime resulted in the country experiencing a serious economic and institutional crisis. As time went by the international community paid more attention to infrastructural interventions to create services which were necessary for the economic recovery rather than to humanitarian efforts. The paper proceeds as follows: in section 2, which is devoted to the relation between financial development and economic growth, we offer a literature review on the topic; in section 3 we analyse the banking privatization process that has characterized the Albanian economy in the period of transition from communist regime to free trade; in section 4 we propose a short essay on regulation and banking supervision in Albania; in section 5 we quantify the level of banking concentration in Albania, making a comparison with other European Union countries; in section 6 we consider the role played by foreign banks in the credit access of small and medium-sized businesses; finally the conclusions.