The World Bank’s Board of Executive Directors approved a US$100 million Financial Sector Development Policy Loan (DPL) to the Republic of Albania. The policy operation supports reforms aimed at strengthening the resilience of the banking sector and the regulation and supervision of nonbank financial institutions in Albania.Following the 2008 global financial crisis, Albania’s growth slowed down significantly, exposing severe macroeconomic imbalances and increased vulnerabilities in the system associated with a rapid escalation in public debt and arrears, unsustainable deficits in the energy sector, and a sharp increase in non-performing loans (NPLs) in the banking sector. A malfunctioning financial sector is a threat to economic growth and undermines achievements in poverty reduction and shared prosperity. In response, the government, in support of its platform to accelerate growth and job creation, embarked on significant legal, regulatory, and supervisory reforms to mitigate risks in the financial sector.The World Bank has contributed to strengthening the financial sector in Albania through several operations, including the 2014 Financial Sector Modernization DPL. The new operation builds on the work and results of previous World Bank policy-based lending operations that have supported a wide range of reforms to restore the country’s macro-financial stability, rekindle economic growth, improve management of public finances, and reform pension and energy sectors.“The reforms supported by this operation aim at addressing the current vulnerabilities of the financial sector and enhancing its resilience,” said Ellen Goldstein, World Bank Country Director for the Western Balkans. “These reforms will enable the right environment for banks and nonbank financial institutions to expand credit to the private sector, which in turn will boost economic growth.”The operation is structured around three pillars: adopting policy measures to reduce NPLs and enhance the financial safety net; strengthening regulation, supervision, and resolution regime of banks and Savings and Credit Associations (SCAs); and strengthening the regulation and supervision of investment funds.The actions undertaken by the government and the financial sector authorities supported by the new operation include significant improvements in the legal framework, such as a new Bankruptcy Law, a Bank Resolution Law, a new law on Savings and Credit Associations, and amendments to the Law on Audit, the Deposit Insurance Law, Collective Investments Undertaking Law, the Civil Procedure Code, and the Private Bailiffs’ Law. Some of these key reforms were part of the National Action Plan for the Reduction of NPLs, endorsed by the government and the Bank of Albania.The authorities and the World Bank have consulted with a range of stakeholders on the specific measures supported by this DPL, including the banking industry, SCAs, farmers, small businesses, and NGOs. Several public workshops were also held with law practitioners, judges, businesses associations, consultants and advisors, financial sector entities, and advocacy NGOs.“These reforms not only mitigate the risks faced currently by the banking sector, but also introduce important changes that will have a long-term benefit for businesses and lending activities in the country”, said Michael Edwards, World Bank Task Team Leader of the Project. “The new bankruptcy law, for instance, is expected to substantially improve the effectiveness and speed of handling insolvency cases, and also establish credible restrictions for problematic borrowers”.The Financial Sector DPL is a fixed spread IBRD loan with an eight-year grace period and repayment of 31 years.Since Albania joined the World Bank in 1991, a total of 90 projects comprising around US$2.56 billion of IDA credits and grants and IBRD loans have been provided to the country. The World Bank active portfolio has ten investment lending projects under implementation with a total net commitment of US$615 million.