Albania

This Selected Issues paper analyzes a building block approach for introducing a positive neutral countercyclical capital buffer (CCyB) in Albania. While Albania has advanced its macroprudential policies, the current regulatory framework includes limited releasable buffers. Introducing a positive neutral CCyB regime would be an important milestone in the development of Albania’s macroprudential toolkit. It would strengthen the Bank of Albania’s ability to react to stress episodes and improve the usability of capital buffers without unduly restricting bank credit provision, while maintaining a higher CCyB through the cycle compared to the existing buffer regime. While high bank profitability could support a fully capital-accretive transition to a positive neutral rate, there are some merits to a partially capital-accretive or a capital-neutral introduction in the Albanian context. The calibration of the positive neutral rate could be based on a suite of backward- and forward-looking methods, combined with expert judgement.