BoA: A strong economy means strong banks

BoA: A strong economy means strong banks
The stronger the economy of a country is, the more stability there is within the banking system of that country. The larger the bank, the bigger is its ability to face periods of crises. These are the two main conclusions of a special report of the Bank of Albania concerning the threats on the stability of the banking system. “The improvements of macro-economic and financial conditions are among the specific factors which have an impact on the stability of the banks”, banking experts say. Meanwhile, they also argue that the stronger a country’s economy is the bigger is the ability of the banks to deliver their obligations.

“This is why the index relating to economic activity is a positive one”, they explain. Meanwhile, as far as the impact of the size of a bank in its success is concerned, they say that: “Sometimes it may happen that the growing domination of one bank over other banks may have a counter-productive effect, because if a higher percentage of the market comes through higher capital or more aggressive policies, this may lead to more attractive, but risky new products. This in turn leads to a bigger threat for the bank and a higher probability for bankruptcy”, experts argue. They also say that banks must also be cautious even when they are powerful in the market, because this may have an opposite effect if they do not know how to offer the necessary services due to the size and the strength that they exert in the domestic banking market.

 

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