LAW FOR THE BANKING SYSTEM OF ALBANIA

According to Article 16 of Law No.7491, dated April 29, 1991, "On the main constitutional provisions" on the proposal of the Council of Ministers,

THE PEOPLE'S ASSEMBLY

OF THE REPUBLIC OF ALBANIA

HAS DECIDED:

CHAPTER I

GENERAL PROVISIONS

Article 1

Banks shall be independent financial institutions that take all kinds of money deposits from physical and legal persons, preserve their secrets, provide credit and execute other banking activities recognized by law.

Article 2

The banking system in the Republic of Albania is organized on two levels. The first level comprises the Bank of Albania, whose status is defined by special law. The second level comprises other banks.

Article 3

Banks shall be organized in one of the following forms:
a) state banks, banks limited by shares, cooperative banks, private banks with Albanian capital exclusively;
b) private or state banks with Albanian and foreign capital;
c) private banks with foreign capital exclusively.

The bank may be national or regional bank.

Article 4

A particular enterprise shall not be regarded as a bank if the Bank of Albania shall have determined that its credit transactions are limited and it obtains its funding from banks or other financial institutions.

Article 5

The Banks have the right to open banking branches or offices outside the territory of the country, if they are licensed by the Bank of Albania.

With respect to enterprises whose head office is located outside Republic of Albania and that are licensed to engage in banking activities with one or more branch officies or agencies in Albania, the provisions of this law shall apply only to the extent of their business in Albania.

Article 6

No one shall engage in the banking activities described in Article 3 without a license and not in accordance with the provisions of this law.

The foregoing prohibition shall not apply to enterprises regarded as banks pursuant to Article 1.

Article 7

Enterprises other than institutions licensed to act as banks pursuant to this law shall be prohibited from using the word "Bank", or equivalent designations unless it is not engaged in taking deposits from physical and legal persons and extending credit or investing in financial market for third parties.

The prohibition shall not apply to enterprises whose name is recognized by law or international agreement of the State.

CHAPTER II

LICENSING

Article 8

A license to operate as a bank may be obtained only upon written application to the Bank of Albania in the form prescibed by this Bank. The application shall include the proposed act of registration as a legal entity, charter, the proposed location of its head office and branches if any, as well as the nationality and domicile of the founders of the bank. The application shall be supported by a bussines plan for the first three years of its activity. The license shall be granted by the Bank of Albania, if :

a. it shall be convinced for the adequacy of proposed capital funds and other financial resources;
b. the Board of Directors will consist of at least two persons, with the qualifications and experience required for the management of the bank;
c. the banking activity will meet the needs of the proposed areas;
d. the proposal will have positive effects on competition in the markets to be served;
e. the bank has the to become profitable in a reasonable period of time;
f. the bank guarantees to respect the law and regulations of the Bank of Albania.

Article 9

1. Within ninety days from the date of the complete application receipt, the application shall be approved or denied by the Bank of Albania.
The decision shall be communicated in writing and it is irreversible.
A denial decision shall include an explanation of the legal grounds on which the application was denied.
The request may be resubmitted when the reasons for refusal have been fulfilled.

2. The license to operate as a bank shall be granted for an indefinite period of time and it is irreversible.
In special cases, the license may restrict or exclude the conduct of activities with respect to which the Bank of Albania determines that they require a special qualification.

Article 10

1. The given license may be revoked by the Bank of Albania if it determines that:
a. the license has been obtained on the ground of false statements contained in the application;
b. the bank fails to meet any of the conditions attached to the license or any infraction as specified in Article 44 of this law has been committed;
c. to the bank, whose head office is located abroad and that has its branches and offices in Albania, the license is revoked by the respective country;
d. the owner or owners of the bank have decided to dissolve or liquidate the institution;
e. the bank has ceased to exist as a legally independent entity following its dissolution, liquidation, merger, amalgamation, division or absorption.

2. The decision to revoke a license shall be communicated in writing to the bank concerned and it is irrevocable.

Article 11

A bank may request the Bank of Albania in writing to revoke its license to operate as a bank.
Within ninety days after its receipt of the request, the Bank of Albania shall decide on the request.
The decision shall be communicated in writing to the bank, giving, in the event of a denial, the grounds therefor.

Article 12

All licenses and decisions to revoke a license shall be published in the Official Gazette of the Republic of Albania.
Following publication of the decision to revoke a license, the enterprise concerned shall be prohibited from attrating financial resources from the public and extending credit. Within a period of time determined by the Bank of Albania, the bank shall liquidate its assets, terminate its current deposit agreements and discharge its liabilities.

Article 13

The Bank of Albania shall keep a register recording the name, head office and address of the currently licensed banks.
The Bank whose license has been revoked shall be removed from the register.
Copies of the register shall be available for inspection by the public.

Article 14

Representative offices of financial institutions domiciled abroad or their branches in Albania shall not take money deposits from the albanian legal and physical persons. The financial institutions domiciled abroad without licenses to operate in Albania shall not take money deposits directly or through agents.

CHAPTER III

ADMINISTRATION AND OWNERSHIP

Article 15

Banks shall be administered by a Board of Directors, which shall be a decision-making organ. They shall have a Audit Committe and be supervised by the Board of Supervisors.
The Bank may choose not to have a Board of Supervisors if Banks are not required by another law to have such Board.
For the purposes of this law, the members of the above Organs and the Directors of departments shall be called Administrators.

Article 16

1. No amendment of the licenses given shall take effect without the prior written consent of the Bank of Albania.

2. All banks shall be governed by internal by-laws, which are composed in accordance with the license granted.

3. The by-laws of banks shall be approved by the Board of Directors. The certified copy of the by-laws shall be filed with the Bank of Albania.

4. Each bank shall maintain on file with the Bank of Albania, and in the Court for each jurisdiction where it maintains an office, a duly certified copy of its license and charter, and a list of the bank officials, a description of their authorities and togother with their specimen signatures.

Article 17

The Board of Directors, Board of Supervisiors and Audit Committe authorities shall be set forth by law and by charter.

Article 18

The Board of Directors and the Board of Supervisors shall have at least two members.

Article 19

1. The Audit Committee shall consist of three members appointed by the shareholders or owners of the bank and shall have the following duties:

a. shall establish and supervise the appropriate accounting procedures for the bank, and audit the bank's accounts and records;
b. shall monitore the implementation of the regulations and report to the Board of Directors of the Bank;
c. shall deliver opinions on any matters submitted to it by the Board of Directors.

2. The Audit Committee shall meet ordinarily once per quarter and extraordinarily when convened by the Board of Directors. Decisions shall be taken by a majority of the members present. No abstentions shall be allowed.

3. Upon its request the Audit Committee may be assisted by experts appointed by the Board of Directors of the bank.

Article 20

All persons elected or appointed as Administrators of a bank shall meet the requirements established by the Bank of Albania regarding qualifications, experience, and reputation.

Article 21

The establishment of a bank branch, office, or agency shall be subject to the Bank of Albania policy.

Article 22

To have legal effect, the merger, amalgamation, division or absorbtion of a bank shall require the prior authorization of the Bank of Albania.
Approval of such merger, amalgamation, division or absorbtion shall be granted only if shall be granted a license to operate as a bank.

Article 23

The minimum amount of unimpaired capital, minimum fund of reserves and profits share that shall contribute in their increase shall be determined by the Bank of Albania according to the class of such banks.
The structure of the unimpaired capital, reserve funds and profits shall be determined by the Bank of Albania.

Article 24

To have legal effect, the transfer, in one or more transactions, by a person or number of persons acting in concert, of an equity interest representing in the aggregate more than 15 percent of the subscribed capital stock of a bank shall require the prior written authorization of the Bank of Albania.

CHAPTER IV

OPERATIONAL REQUIREMENTS

Article 25

3. Upon its request the Audit Committee may be assisted by experts appointed by the Board of Directors of the bank.

Article 20

All persons elected or appointed as Administrators of a bank shall meet the requirements established by the Bank of Albania regarding qualifications, experience, and good reputation.

Article 21

The establishment of a bank branch, office, or agency shall be subject to the Bank of Albania policy.

Article 22

To have legal effect, the merger, amalgamation, division or absorbtion of a bank shall require the prior authorization of the Bank of Albania.
In carrying out credit transactions, banks shall comply with the principles of risk avoidance, diversification, and liquidity, as well as with the directives and instructions issued by the Bank of Albania.

Article 26

1. Banks shall keep on file the pertinent legal documents for every credit transaction, namely:
a. the credit application, the documents which indicate its use, legal status and the value assigned to the collateral or guarantees required and provided.
b. the financial records of the customer and any guarantors which shall serve as the basis for approving the credit transactions.
c. the decision of the department and respective director approving the credit transactions signed by responsible persons. In the case of a decision by the Board of Directors, a copy of the meeting minutes at which the credit transaction was approved, must be extracted.

2. The Bank of Albania shall have the right to request further documents and procedures other than conditions determined in point 1 of this Article. Only the Bank of Albania may permit simplified documentation for credit transaction involving small amounts, discount or pledge of commercial paper. These shall be approved by the managers of branches, agencies, and other such officies of banks within the limits of their authorities.

Article 27

Banks shall be ohliged to observe the following limits determined by the Bank of Albania:
a. the maximum ratios to be maintained by banks between their assets, risk-weighted assets and off-balance sheet items and their unimpaired capital, reserves and surplus;
b. the maximum aggregate credit amount, expressed as a percentage of their unimpaired capital, reserves and surplus, that banks shall be permitted to extend to any single or interrelated borrowers;
c. the maximum aggregate credit amount, expressed as a percentage of the aggregate amount of credits disbursed and outstanding, that banks shall be permitted to extend to their ten largest borrowers, including groups of interrelated borrowers.

Article 28

Banks shall be obliged to observe the following requirements determined by the Bank of Albania concerning:
a. the minimum size of liquid resourses or specific categories of such resourses in relation to the size or change in size of assets, guarantees or their specific categories thereof, or in relation to the size or change in size of liabilities or their specific categories, provided that the bank shall be permitted to meet the requirement of liquid resources by maintaining with the Bank of Albania deposits of an equivalent value;
b. the maximum aggregate amount of credits, financial investments and guarantees, or specific categories thereof;
c. requirements, prescribed under the force of exceptional circumstances, concerning the interest rates and other charges to be paid by a bank, as well as the requirements concerning the maturity and other conditions, applicable to deposits, guarantees and other liabilities, denominated in lek or in foreign currency;
d. requirements, prescribed under the force of exceptional circumstances, concerning the interest rates, maturity and other conditions applicable to any type or form of increase or decrease of financing, or contingent liabilities entered into;
e. the amounts to be reserved against doubtful and non-performing loans. Earnings may be calculated beginning from the date when these loans shall be received in cash;
f. the banks must respect prohibitions, restrictions and conditions concerning:
(i) the types or forms of credits and investments made or contingent liabilities entered into;
(ii) the control of assets and liabilities maturity and offbalance sheet items; and
(iii) unhedged foreign currency positions.

Article 29

Each bank shall regularly notify its customers of the terms and conditions of annual interest rates, related to deposits, credit application and their changes, including the calculation method used.

Article 30

Banks shall not, without prior written authorization from the Bank of Albania:
a. issue or sell securities either in or outside the territory of the Republic of Albania;
b. decrease their capital by repurchase of shares or distribution of reserve assets;
c. purchase shares or become a partner in aggregate amounts to more than ten percent of the enterprise capital, or come under common ownership, or otherwise become associated with other enterprises other than banks or such similar institutions as the Bank of Albania shall designate; and
d. permit the investments described under paragraph c, to exceed the equivalent of 25 percent of the bank's unimpaired capital, reserves and surplus.

Article 31

1. The prohibitions specified in article 30 shall not apply in the following cases:
a. acquisition of shares or other interests by way of repayment of credits granted. In this case the purchasing bank shall dispose of all shares or interests acquired within one year, unless a loan extension is granted by the Bank of Albania;
b. acquitision of shares or other interests as an agent;
c. acquisition of shares for the purpose of reselling them to third parties.

2. Banks shall be prohibited from entering into contracts, agreements or adopting practices of any kind which would secure them a position of dominance on the money, financial or foreign exchange markets. Engaging in manipulative practices in order to obtain an unfair advantage for themselves or for third parties shall be prohibited.

CHAPTER V

BUSINESS WITH PERSONS RELATED TO THE BANK

Article 32

1. Banks may conduct business with related persons in accordance with the provisions of this law.
For the purposes of this law, the term "related person" shall mean:
a. any of the Administrators specified in the article 15 of this law;
b. any company controlling the bank or any of the Administrators and principal shareholders of such company;
c. the spouse or any relative, up to the third degree of consanguinity, of any of the bank Administrators or of any of the principal Administrators of a company controlling the bank;
d. any company in which any one of the persons referred to above has a direct or indirect equity interest exceeding 10 percent of their subscribed capital stock;
e. any of the principal shareholders of the bank and any company under their direct or indirect control;
f. legal entities or civil person controlling a bank, and their Administrators, as well as any legal entity directly or indirectly controlled by them, and its Administrators.
g. related persons with respect to any of the financial institutions making up a group of interrelated financial institutions shall be considered related persons with respect to each of the institutions in the group.

Article 33

2. For the purposes of the Article 32:
a. "principal shareholder" means the beneficial owner of more than 10 percent equity interest in the subscribed capital stock of an enterprise;
b. "control" with respect to a company or financial institution means;
- owing more than fifty percent of shares;
- having the power to elect a majority of the company directors;
- having a controlling influence over the establishment of the policy management of a company or institution.

Article 34

Banks shall not grant favored terms to related persons.
For the purposes of this Article, "granting favored terms" shall mean:
a. transactions, which by their nature, purpose, and risk that they have, would not be effected to other customers, but to related persons;
b. collecting interest, fees, other charges and accepting guarantees which are lower than those of other customers.

Article 35

Banks shall extend credit to related persons as defined in Article 32 of this law, if so authorized by their Board of directors based on a report of the respective department. The above report shall describe the relationships of the related person involved concerning the transaction that will be effected, the financial situation of the applicant and an assessment of the applicant's creditworthiness.
Members of the Board of Directors shall be required to leave the meeting during the time in which the Board is deliberating and deciding on the transactions of another person, with whom the member of the Board is related by marriage, blood, kinship or profit interest.
The aggregate amount of credit extended by a bank to any one of its employees shall not exceed 24 times his gross monthly salary. The aggregate amount of credit extended by a bank to its employees shall not exceed 10 percent of the bank's subscribed capital stock.

CHAPTER VI

ACCOUNTS, AUDITING, INSPECTION, AND REPORTING REQUIREMENTS

Article 36

Banks shall keep adequate accounts and prepare financial statements, to reflect accurately and in accordance with sound accounting principle, its financial condition.
In the event that the bank will have an equity interest in one or more other banks equivalent to more than fifty percent of its subscribed capital stock, the bank shall keep the necessary accounts and shall prepare financial statements so as to accurately reflect the financial condition of such other banks, in accordance with standart accounting principles and methodology.

Article 37

An independent auditor approved by the Bank of Albania shall be appointed by each bank. The auditer shall have the following duties:
a. to assist in keeping adequate accounts and records of its operations and transactions in accordance with sound accounting principles;
b. to prepare, in accordance with respective regulations, an annual report on the financial statements (balance sheet, profit and loss account and related statements) of the bank, and to deliver on opinion as to whether the financial statements are adequately reflect the financial position of he bank;
c. to inform the Board of Directors, Board of Supervisors and the Bank of Albania of any irregularities or deficiences observed in the operations, transactions, procedures, records or accounts of the bank which could result in material losses for the bank.

Article 38

The balance sheet of the bank, the annual report and the auditer's report for the financial year shall be published in the official bulletin of the bank.

Article 39

All banks shall be subjects to inspections by Bank of Albania inspectors and by auditor appointed by it. In their inspections of banks, the Bank of Albania and its auditers may:
a. examine the accounts and related documentation, the corporate books, and any other document in the archives of the bank; and
b. require Administrators, employees and agents of the bank to provide all such information on any matter relating to its administration and operations as they shall request.

Article 40

The provisions of Articles 38 through 39 of this law shall apply to banks that are branch offices of foreign financial institutions or the branch officies of separate legal entities. Balance sheets and financial statements of these branches may be prepared on a pro forma basis, in accordance with the charter and by-laws of the bank.
A representative organ of the foreign financial institution may function as an Audit Committee of these branch offices for the implementation of this law.

Article 41

Banks shall prepare periodic reports providing information on their administration and operations, liquidity and profits in accordance with the regulations determined by the Bank of Albania.

CHAPTER VII

INFRACTIONS AND PENALTIES

Article 42

The Administrators of the Bank of Albania, for the infractions of regulations specified in the Article 10 paragraph "a", Articles 26, 27, 28, 29, 30, 31 paragraphs two and three, Articles 34, 35 - last paragraph, 36 and 41 of this law, if these infractions do not constitute a penal act, may punish the banks or their Administrators with a fine of up to 5000 leks for administrative infractions.
An appeal in set form may be made against the punishment decision, within five days from its declaration or communication, to the Governor of the Bank of Albania, whom decision is irreversible.

Article 43

In the event that the provisions of this law are fractioned by banks or their Administrators, the Bank of Albania shall regulate the situation, taking the following measures:
a) issue written warnings concerning restraining various bank activities, including revoking the license;
b) specify that the bank should undertake remedial measures including those limiting the operations of the bank;
c) issue written orders to cease and desist from such infractions;
d) call a meeting of the Council of Shareholders or other owners of the bank to discuss the remedial measures to be taken;
e) order conservatorship of the bank, through persons authorized by it, that shall operate in accordance with the provisions of this law;
f) revoke the bank's license.

Article 44

The administrative penalties and measures provided in the Articles 42 and 43 of this law shall not preclude application of civil or criminal penalties as provided in legislation in force. Penalties shall applied in accordance with the seriousness of the offense and its impact. These penalties shall eaqually apply to any individual or legal entity which engage itself, without a license, in banking activities.

Article 45

The fines imposed shall be paid to the state budget.

CHAPTER X

CONSERVATORSHIP AND LIQUIDATION

Article 46

In the event that the financial position of a bank is such that it is not in compliance with the minimum requirements of its activity pursuant to this law, the bank may, by decision of the Bank of Albania, be placed under conservatorship in order to preseve, remedy or resolve the bank's financial position.

Article 47

The decision ordering conservatorship shall indicate:
a. the reasons of the conservatorship;
b. the name of the conservator appointed, who may or may not be an official of the Bank of Albania;
c. conservatorship for a period of not more than six months;
d. funds; and the possible freezing of deposits or other customer
e. the sequestration of the personal assets of the Administrators of the bank, in the event they have personal liability for losses of the bank, in order to guarantee the payment of possible losses to third parties.
A decision of this kind goes into force on the

date of its publication in the Official Gazette.

Article 48 Acts issued by the bank under conservatorship shall be consider unvalid if the conservator otherwise decides.

Article 49

During the conservatorship duration under the paragraph "c" of Article 47, shall be suspended the activity of Administrators of the bank. They shall return to their previous duties only if they are not disqualified by the Bank of Albania.

Article 50

The conservator shall require the prompt changes in the lists of authorized officials of the bank that are kept by the Bank of Albania and by the district Court for the jurisdiction where the head office of the bank is located.

Article 51

The conservator appointed by the Bank of Albania shall be authorized to adopt any measure required to normalize the situation of the bank, including the closure of branches, agencies and other such offices and the dismissal of Administrators and employees deemed by him to be redundant or unfit to perform their duties.

Article 52

During the period of conservatorship, the Bank of Albania may provide financial support to the bank under conditions determined by it in order to make up any temporary liquidity deficiency.

Article 53

If the Bank of Albania deems the rehabilitation of the bank under conservatorship to be more costly than its dissolution it shall declare the bank insolvent and liquidate it.

Article 54

Claims resulting from advances of funds by the Bank of Albania to the bank durinq its conservatorship shall have priority over all other claims on the bank.

Article 55

The conservatorship shall cease:
a. at the end of the term established in the decision ordering conservatorship or at the end of an extension of that term by decision of the Bank of Albania published in the Official Gazette;
b. if the Bank of Albania deems that the bank can operate normally; or
c. upon liquidation of the bank in accordance with the law.

CHAPTER XI

FINAL PROVISIONS

Article 56

The employees of the bank and other persons that will be charged to control the banking activity shall be required to keep the secret of any information that they obtain in the course of their service in the bank. Such information may be disclosed only to administrators of the bank or, upon the written request, to court, and judicial authorities under procedures provided by law.

Article 57

Banks shall have a emblem and its seal showing the distinct symbols.

Article 58

Banks of the second level shall pay a profit tax and other taxes at the level set by the law.

Article 59

Institutions that operate as a bank at the time that this law enters into force, shall be deemed to be licensed to operate as a bank.

Article 60

All regulations, guidelines and orders issued by the Bank of Albania that apply to more than one institution shall be published in the Official Gazette and shall take effect on the date of such publication or on the date as such regulation, guidelines or order shall specify.

Article 61

Decree No.7493, dated December 1, 1990 "Concerning the Albanian Commercial Bank" and law No.7505, dated July 31, 1991 "Concerning the Savings Bank" are rescinded.

Article 62

This law shall enter into force immediately.

Tirana on April 28, 1992
Law No.7560

Chairman
Pjeter Arbnori