Regulation 2/2013 on Risk Management in Non-Bank Financial Institutions (Integrated Version)

REPUBLIC OF ALBANIA
BANK OF ALBANIA
SUPERVISORY COUNCIL
DECISION
No. 02 dated 17. 01. 2013
APPROVAL OF REGULATION
“ON RISK MANAGEMENT IN THE ACTIVITY OF NON-BANK FINANCIAL INSTITUTIONS” In accordance with Article 1, paragraph 4, "b", and Article 43, "c" of the Law No. 8269, dated 23.12.1997 “On the Bank of Albania ”, amended ; Article 126 of the Law No. 9662, dated 18.12.2006 “On banks in the Republic of Albania", amended; having regard to the proposal from the Supervision Department, the Sup ervisory Council of the Bank of Albania, DECIDED:

1. To approve the Regulation “On risk management in the activity of non-bank financial
   institutions”, according to the decision attached herewith.
2. The Supervision Department at the Bank of Albania is responsible for the
   implementation of this Decision.
3. Foreign Relations, European Integration and Communication Department is
   responsible for the publication of this Regulation in the Official Bulletin of the Bank of Albania and in the Official Journal of the Republic of Albania.
4. The Regulation “On risk management in the activity of non-bank institutions”,
   adopted with the Decision of Supervisory Council No. 25, dated 24.03.2010 shall be abrogated. This decision shall enter into force on the 15th day following that of its publication in the Official Journal of the Republic of Albania. SECRETARY CHAIRMAN

YLLI MEMISHA ARDIAN FULLANI

REGULATION
“ON RISK MANAGEMENT IN THE ACTIVITY OF NON-BANK FINANCIAL INSTITUTIONS” (Adopted with decision No. 02, dated 17.01.2013 and amended by decision No. 46, dated 06.09.2017, decision No. 50, dated 3.7.2019, circulating decision No. 14, dated 12.3.2020, decision No. 58, dated 21.12.2022 and by decision No. 47, dated
2.10.2024 of the Supervisory Council of the Bank of Albania)
CHAPTER I
GENERAL PROVISIONS
Article 1
Purpose
The purpose of this regulation is to set out the rules for the management of risk in the activity of non-bank financial institutions.
Article 2
Legal ground
This regulation is issued in accordance with:
a) Article 1, paragraph 4, letter "b", and Article 43, letter "c" of the Law No. 8269 dated
23.12.1997 “On the Bank of Albania”, as amended;
b) Article 126 of the Law No. 9662, dated 18.12.2006 “On banks in the Republic of Albania”, which hereinafter shall be referred as the “banking law".
Article 3
Scope of application
This regulation shall apply on 1non-bank financial institutions and microcredit financial institutions, being granted a license to carry out their financial activity in the Republic of Albania.
Article 4
Definitions

1. For the purpose of this regulation the terms shall have the same meaning with those
   defined in the banking law and in the Regulation “On the licensing and the activity of non-bank financial institutions”.
2. In addition to the stipulation of paragraph 1 of this Article, for the purpose of this
   Regulation, the following terms shall have these meanings:
   a) 2“regulatory capital” - is the capital used to measure regulatory indicators and is calculated as the algebraic sum of the following elements of the balance sheet:

1 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 2 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania.

i. paid-in capital,
ii. equity premiums,
iii. reserves,
iv. revaluation difference,
v. retained profits,
vi. profit-loss of the financial year,
vii. (minus) participations in the capital of other subjects,
viii. subordinated debt.

b) "non-performing loans” – shall mean the total loan (principal and interest) classified in the last three categories according to the definitions of this regulation; c) "net non-performing loans” – shall mean the total of non-performing loans (principal and interest), deducting the reserve fund, established to cover looses for these loans; d) 3 repealed; e) “loan restructuring" – shall mean the facility/facilities the institution makes for the borrower/borrowers owing to their financial difficulties, due to economic or legal causes, which are not made by the institution in no other occasion, and in general shall include:
i. facilities made in loan terms, through the alteration of one or some terms in
the contract (including alteration of product and interest capitalisation) which mainly related to the them, principal and interest rate),
ii. acquisition (use) of collateral or other assets for the partial payment of a loan,
iii. replacement of the first borrower or the inclusion of one or more additional
borrowers. f) 4 “subordinated debt” – is an equity instrument, whose contract in case it stipulates a definite date to be paid, the initial maturity period should be no shorter than 5 years, or in case it does not stipulate a definite date, the obligation may be settled upon a preliminary notification of 5 years, and in no case a pre￾maturity settlement shall be stipulated, without the approval by the Bank of Albania. Settlements should not be used to cover losses. Institutions include subordinated debt in the regulatory capital, up to 50% of the sum of the capital elements until 31.12.2023 and, starting from 1.1.2024, up to 33.3% of the sum of the capital elements, only if the specified requirements in letter “f”’ of paragraph 2 of this article are met. For the purposes of this calculation, shall be considered the sum of the capital elements provided for in sub-paragraphs “i” to “vii” of letter “a” of paragraph 2 of this article. The institution that seeks to include the subordinated debt in its regulatory capital 6 shall inform the Bank of Albania, and shall submit the following documents:
i. the signed contract on the issue of the subordinated debt;

3 Repealed by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 4 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 5 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 6 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania.

ii. a schematic illustration of compliance 7 with the requirements and
characteristics of the subordinated debt defined in the letter “f” of paragraph 2 of this article, by providing the relevant references in the contract;
iii. a description of the accounting treatments of the subordinated debt, in
addition to the opinion of the statutory auditor or auditing company, regarding its acceptance; and
iv. a declaration on the legal source of the borrowed funds;
g) 8“consumer” – shall have the same meaning defined in paragraph 6 of article 3 of law no. 9902, dated 17.4.2008, “On consumers protection”, as amended; h) 9“consumer credit agreement” - shall have the same meaning defined in article 44 of law no. 9902, dated 17.4.2008, “On consumers protection”, as amended.
CHAPTER II
RISK MANAGEMENT FOR ALL INSTITUTIONS
SUB CHAPTER I
CORE PRINCIPLES AND RULES FOR A RESPONSIBLE AND EFFECTIVE MANAGEMENT
Article 5
Steering bodies and general management culture

1. Steering bodies, in compliance with the tasks and obligations related to the
   management and control of the institution, by establishing/determining in advance risk bearing and tolerance and its regular monitoring in compliance with the latter, ensuring capital rates sufficient to cover this risk.
2. Steering bodies, through the management style, shall encourage an adequate
   management culture that prioritises the honesty and the establishment of correct relationships among employees, based on high professional standards and ethical values.
3. Steering bodies shall take all measures to accomplish high ethical and professional
   standards for the institution’s management.
   Article 6
   Risk management system
4. The institutions shall have in place and develop the risk management system, in line
   with the nature, volume and complexity of their activity.
5. Risk management system shall mean the set of policies, procedures, rules and
   structures of the institution, which serve for the risk management.

7 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 8 Added by the Decision No. 47, dated 2.10.2024 of the Supervisory Council of the Bank of Albania. 9 Added by the Decision No. 47, dated 2.10.2024 of the Supervisory Council of the Bank of Albania.

3. 10The risk management system shall imply:
   a) the process of identification, measurement, monitoring, control and reporting of all the risk types within an entity across all its activity (for the entire balance sheet, portfolio and business lines); b) determining the functions of risk management structures that shall ensure:
   i. the identification of all the risks;
   ii. the assessment of all risks and measurement of the exposures towards
   them;
   iii. the monitoring of the risk exposure and determining the capital needs on an
   ongoing basis;
   iv. the monitoring and evaluation of the decisions to accept certain risks, the
   measures for risk mitigation and the compliance of decisions of steering bodies on risk policies;
   v. reporting directly and independently to the steering bodies on all the above
   mentioned issues.
   11Article 6/1
   Internal audit function/unit
4. Entities shall establish the internal audit function/unit, as part of the internal control
   system.
5. The internal audit function/unit is a separate organizational unit of the entity,
   independent from the activities, structures and individuals, that it reviews or controls, that reports to the management/supervisory board and/or the audit committee of the entity.
6. Each activity, department, branch, and other organizational unit of the entity shall be
   included in the control area of the internal audit function/unit.
7. The internal audit function/unit shall ensure, independently, the steering bodies on
   the quality and effectiveness of the internal audit of the entity, as well as the administration/governance and risk management system and processes.
8. The internal audit function/unit shall implement international standards of internal
   control.
9. Entities shall establish and approve internal acts for the functioning and carrying out
   the activity of this function/unit that shall be drafted and reviewed as frequently as deemed necessary.
10. The internal acts which define the manner of functioning and carrying out the activity
    of the internal audit function/unit, shall include at least the following elements:
    a) the scope and field of activity of the internal audit function/unit; b) the role, authority and responsibilities of the internal audit function/unit; c) the relations of the internal audit function/unit with other functions of the control system within the entity; d) the ways and lines of communication of the results of the auditing activities;

10 Added by the Decision No. 50, dated 3.7.2019 of the Supervisory Council of the Bank of Albania. 11 Added by the Decision No. 50, dated 3.7.2019 of the Supervisory Council of the Bank of Albania.

e) the procedures for the coordination with the statutory auditor or the auditing company and the supervisory authority; f) the right for unlimited and unconditional use of any registration, file, database, physical assets of the entity, as well as every document of the steering bodies or organizational units of the entity, necessary for the carrying out of this function’s/unit’s functions; g) the right of the head of the internal audit function/unit to have direct communication with the steering bodies; h) the right of planning and determining controls independently; i) the assurance of avoidance of any conflict of interests in carrying out the duties of internal audit; j) the requirements for compliance with the best standards of internal audit.
8. The frequency of the audit shall be based on the risk based evaluation of every field
of activity and/or organizational unit of the entity. All the areas of activity and/or organizational units of the entity shall be subject to auditing by the internal audit function/unit at least every three years, including those with low risk.
9. The internal audit function/unit shall prepare a report on any audit carried out. This
report should include at a minimum:
a) the audit object; b) the description of the audit work (description of the methodology, steps and procedures followed so as to attain the audit targets, etc.); c) audit findings; d) comments by the managers of the audited organizational units on the audit findings; e) assessments on the qualifications of employees, adequacy of internal acts and risk assessment system, on a case by case basis; f) recommendations on correcting and improving findings that were observed during the audit session, and g) extent of implementation of recommendations proposed by previous audits.
10. The employees of the internal audit function/unit should have:
a) high ethical and professional reputation; b) professional capability to implement international internal audit standards and auditing procedures and techniques in all of the operating areas of the bank; c) knowledge of and/or experience in implementing accounting standards; d) knowledge of risk management principles.
11. The internal audit function/unit shall be responsible to draft at every end-year the
work plan for the following year, which shall be subject to approval by the steering bodies of the entity.
12. The internal audit function/unit presents an annual report on the work conducted by
the unit to the steering bodies of the entity, which shall contain the following elements:
a) a report on the level of implementation of the annual work plan of the internal audit function/unit; b) a list of all the activities planned and carried out by the internal audit function/unit;

c) a list of all the activities conducted, but not planned in the annual work plan of the internal audit function/unit; d) a list of all the activities planned, but unrealized by the internal audit function/unit, along with the reasons for non-realization; e) a summary of the most important findings identified during audits; f) a general assessment of the adequacy and efficiency of the internal control system in the areas covered by the internal audit function/unit; g) a general assessment of the adequacy and efficiency of the risk management system; h) a report on the extent of implementation of recommendations and corrective measures defined based on the recommendations, as well as the reasons for the lack of their implementation. 12Article 6/2 Compliance function

1. Entities shall have an executive director, responsible for the identification,
   coordination and management of the compliance risk.
2. The compliance structure/unit is independent from, the business lines and the
   internal units that controls and has the authority, reputation and sufficient resources.
3. The main responsibility of the structure/unit that fulfills the entity's compliance
   function, is to assist the steering bodies of the entity for effectively managing compliance risk.
4. The compliance structure/unit shall advise the steering bodies of the entity, on
   compliance with laws, rules and standards, informing regularly on developments in the field and more specifically it performs / fulfills the following tasks:
   a) educate and train the staff on compliance issues and act as a contact point within the entity for compliance-related queries from staff members; b) establish written internal guidelines for the staff on the appropriate implementation of laws, regulations and standards through policies and procedures and other documents such as compliance manuals, internal codes of conduct and practical guidelines; c) identify, record and assess compliance risks associated with the operations of the entity, including new products and practices, proposed establishment of new types of business or customer relations, and material changes in the nature of such relations; d) assess the possible impact of any legal and regulatory change on the bank's activity and on the compliance framework; e) measure the compliance risk by using performance indicators (e.g. increased number of customer complaints, irregularities in payments, etc.) to enhance compliance risk assessment; f) assess the appropriateness of compliance procedures and regulations and the identified deficiencies, by formulating proposals for amendments; g) monitor, test and report results of the compliance adequacy testing in accordance with internal risk management system, identifying any changes in the compliance risk profile based on relevant performance indicators, identified breaches and/or deficiencies and corrective measures that have been taken;

12 Added by the Decision No. 50, dated 3.7.2019 of the Supervisory Council of the Bank of Albania.

h) create an encouraging and suitable climate for the employees of the entity to communicate/signal non-compliance with the rules, procedures, operations, etc., ensuring at the same time, the confidentiality and protection for the employees.
5. The compliance structure/unit may accomplish other specific statutory functions in
the framework of fulfilling legal obligations of the entity (such as anti-money laundering etc.), as well as liaise with the Bank of Albania and/or other financial supervision authorities, external statutory accountant, etc.
6. The compliance structure/unit performs the duties specified in this Regulation and in
the entity’s regulatory acts under a compliance programme that sets out its planned activities, such as implementation and review of specific policies and procedures, special procedures on compliance risk, compliance testing and assessment as well as staff training and education on compliance matters.
7. The programme of the compliance structure/unit shall be risk-focused and subject to
ongoing review to ensure appropriate coverage across all entity business/activity lines operations and coordination among risk management functions. SUB CHAPTER II Maximum allowed exposure
Article 7
Maximum allowable large exposure limits

1. Exposure of an institution to a person or third party is the sum of all transactions at
   the balance-sheet asset and off-balance sheet commitments with this person or counterparty and related counterparties.
2. Exposure of an institution, excluding the leasing institutions, to a single person or
   group of related counterparties will be considered as large exposure when its value is equal or higher than 10% (ten per cent) of the 13regulatory capital of the institution.
3. Exposure of an institution to a single person or group of related counterparties should
   not exceed 15% (fifteen per cent) of the 14 regulatory capital of the institution, excluding institutions that carry out 15factoring and financial leasing activities.
4. In the institution’s exposure to a single person, the following are excluded:
   a) claims arising from the transactions stipulated in paragraph 1 of this Article, insured with a monetary deposits pledge, up to the amount of this insuring pledge; b) securities of the Government of the Republic of Albania or of the Bank of Albania or an un-negotiable guarantee of the Government of the Republic of Albania;

13 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 14 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 15 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania.

c) 16participations in the capital of other entities, which are deducted from the regulatory capital of the institution.
5. The institution, excluding institutions carrying out 17 factoring and financial leasing
activities, shall not undertake high exposures, which, being considered altogether, exceed 600% (six hundred per cent) of the 18regulatory capital of the institution.
Article 8
Calculation of large exposures

1. 19The entities, for the purposes of calculating, reporting and observing the
   maximum permitted large exposure limits, shall weight by 20% (twenty per cent) the exposures to banks and financial institutions in the Republic of Albania, with a residual time to maturity of less than 1 (one) year.
2. Institutions must have in place administrative and accounting procedures, as well
   as mechanisms of internal control for identifying, measuring and monitoring all the large exposures and their changes.
   Article 9
   Liquidity risk
3. Liquidity risk is the possibility of financial loss owing to liquid assets shortfalls, to
   meet the obligations as they come due, and/or when the institution is not able to fund increases in assets.
4. Institutions shall establish a robust liquidity risk management system, which aims the
   well-management of liquidity risk. This system should minimally include the strategies and policies related to the management of liquidity risk, organisational structure established for the management of liquidity risk, the internal audit system, information management system.
5. Institutions shall ensure that the liquidity risk management system, as regards both
   quality and quantity, is in line with the size of the institution, typology of its activity and exposure rate to liquidity risk.
6. The institution shall monitor regularly the indicators of exposure to liquidity risk, as
   set out in the following ratios a. 1-month assets to 1-month liabilities ratio should not be lower than 100% (one hundred per cent); b. 3-month assets to 3-month liabilities ratio should not be lower than 100% (one hundred per cent).

16 Added by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania 17 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 18 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 19 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania.

Article 10
Allowable open foreign exchange position

1. The open foreign exchange position denominated in an individual foreign currency
   represents the equivalent sum in ALL of the difference between total rights and liabilities of the institution denominated in that foreign currency.
2. Institution must not exceed, at the closure of every business day, the following rates
   regarding the open foreign exchange positions:
   a) the open foreign exchange position ratio for an individual currency 20to regulatory capital 21should not be higher than 30% (thirty per cent); and b) the open foreign exchange position ratio for all currencies 22to regulatory capital 23should not be higher than 40% (forty per cent)24 .
3. 25The entities, in calculating the open foreign exchange position do not include
   the structural foreign exchange position, which is created by:
   a) elements (balance sheet and off-balance sheet items), which are not of the nature of the main financial activity of the entity and/or are sustainable/long￾term elements, as: “participating interests”; “investments in affiliates”, “intangible and tangible fixed assets” etc.; b) transactions of the entity which maintain the capital adequacy level, in case the indicator is affected by the volatilities in the exchange rate.
   CHAPTER III
   RISK MANAGEMENT IN LENDING INSTITUTIONS
   SUB CHAPTER I
   EXPOSURES TO RISK AND LIMITS
   Article 11
   Indicators of capital adequacy
4. To carry out a safe and solid activity and to meet its obligations, the institution, shall
   provide adequate capital.
5. The institution shall observe regularly the indicators of capital adequacy, as
   stipulated in the following ratios:
   a. regulatory capital26 to total assets ratio should not be lower than 5 % (five per cent) in the first year of the activity, 8% (eight per cent) in the second year and 10% (ten per cent) onwards;

20 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 21 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 22 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 23 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 24 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania 25 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 26 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania.

b. regulatory capital27 to net fixed tangible and intangible assets ratio should not be less than 100% (one hundred per cent);
c. regulatory capital
28 to non-performing total loans (net) ratio should not be less than 100% (one hundred per cent);
Article 12
Exposure to risk and limits

1. The institution, throughout its activity, shall set out the criteria and compile methods
   and procedures for identifying and monitoring all risks, in line with the internal acts of the institution and the regulatory acts issued by the Bank of Albania.

2. The institution shall observe regularly the indicators of exposure against risk/risks,
   as stipulated in the following ratios:
   a. fixed assets (net) to total assets ratio should not be higher than 20% (twenty per cent) in the first year of the activity, and should not be higher than 10% (ten percent) after the first year of the activity; b. income-generating assets to expense generating liabilities ratio should not be less than 100% (one hundred per cent);
   c. loan to total assets of the institution ratio should not exceed 95% (ninety-five
   per cent); d. any investments into securities, excluding investments in securities issued from the Government of the Republic of Albania and securities issued from governments and/or central banks of OECD countries, should not exceed 5% (five per cent) 29of the institution's regulatory capital; e. total investments on securities, excluding securities investments in securities issued from the Government of the Republic of Albania and/or central banks of OECD countries, should not exceed 40% (forty per cent) 30 of the institution’s regulatory capital.

3. 31The entities, for the purposes of point 2 of this Article, shall consider the most
   recent list of OECD countries as published by this organisation on its official website. SUB CHAPTER II CREDIT RISK MANAGEMENT
   Article 13
   Credit risk

4. Non-bank financial institutions shall adopt the documents related to the strategies,
   policies, procedures and internal rules for the regular monitoring and control of the loan portfolio quality and of other assets.

5. The documents stipulated in paragraph 1 of this Article shall contain/include
   minimally:

27 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 28 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 29 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 30 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 31 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania.

a) the lending strategy by periods, including realistic targets as regards to loan portfolio increase, its content by sectors, geography, currency, type of loan, etc.; b) policies of interest rates, terms, settlements and the loan size; c) rules set out to acknowledge and analyse the borrower and/or the loan guarantor; d) procedures regarding the needed documentation to be filled for granting and approving loans, according to the hierarchy; e) risk management policies for the whole portfolio and for each customer separately, loan limits for a customer, use of loans by sectors, monitoring by object and type of loan, analysis of considerable discrepancies regarding the terms and type of currency, in terms of assessing the relationship between credit risk and other risks (volatility of exchange rate, fluctuation of interest rate, etc.); f) procedures on the regular monitoring of credits functioning and their identification by credits groups with equal characteristics, observation with priority of non￾performing loans, assessment of provisions for potential losses from loans, criteria for the credit restructuring; g) procedures to assess other assets quality, calculate provisions for potential losses from assets depreciation, as well as assess their adequacy.
3. Non-bank financial institutions shall maintain, at separate files, the completed
respective documentation regarding the borrowers.
32Article 13/1
General requirements on lending to consumer borrowers in consumer credit agreements

1. The entity, before concluding a credit agreement and during the loan monitoring
   process throughout the duration of the loan, evaluates the solvency and risk profile of the borrower, based on sufficient, accurate and updated data.
2. The entity attains necessary data and information provided by the borrower himself
   and from other reasonable internal or external sources of the entity, which may affect the solvency of the borrower, in particular the income sustainability, payment history, the probability of income change (increase or decrease), as well as all other financial obligations.
3. The entity, in collecting information and data from third parties about the borrower,
   ensures that the borrower is informed and has given his consent, before the collection of this information and valid until the end of the credit relationship.
4. The entity performs sound verifications on the information related to solvency,
   especially in the case of borrowers who are self-employed, have seasonal income or other irregular income.
5. The entity ensures that the borrower's solvency to meet the obligations under the
   credit agreement is not based on a significant expected increase in the borrower's income, unless the documentation provides sufficient evidence. The entity avoids inducing unnecessary financial difficulties and creating an over-indebtedness situation of the borrower.

32 Added by the Decision No. 47, dated 2.10.2024 of the Supervisory Council of the Bank of Albania.

6. The entity evaluates the current and future ability of the borrower to fulfill the
   obligations under the credit agreement, considering also the potential effect on increased interest rate scenarios, in the case of variable interest rate contracts and unfavorable exchange rate fluctuations.
7. The entity defines in the internal procedures, the information that will be used to
   assess the borrower's ability to pay, depending on the amount, type of loan and source of income. The information includes necessary and appropriate data/documents regarding at least the following:
   a) employment, financial conditions and income stability; b) sources of loan repayment; c) financial commitments and expenses for their fulfillment; d) collateral (for secured/collateralized lending).
8. The entity, in assessing the borrower's solvency, takes in consideration appropriate
   factors/elements that affect the current and future repayment capacity of the borrower, including his living expenses.
9. The entity performs the solvency assessment, based on the joint solvency of the co￾borrowers, in cases where the loan request is presented jointly by more than one
   borrower.
10. In the case of a credit agreement that includes a guarantee from a third party, the
    entity assesses the level of protection provided by the guarantee and, if necessary, performs an assessment of the guarantor's solvency, separately from the solvency analysis of the borrower. 33Article 13/2 Specific requirements on the analysis of the consumer borrowers’ solvency
11. The entity, in assessing the solvency of the consumer borrower, shall be based
    at least on the limitations of the debt service-to-income ratio (DSTI), where the ratio is calculated as follows:
    DSTI =
    DS (Total monthly instalments of existing loans, including the loan for which is applying for) I (Net income of all the co − borrowers) where:
    DS – is the sum of all monthly financial payments/obligations related to the loan for which the borrower has applied, as well as to loans in other financial entities, at the time when the loan is granted. The amount of payments/financial obligations will include the payment of principal, interest and any other commission, part of the credit agreement. I – is the borrower's average net income, after tax payments and other mandatory social contributions, verifiable and recognized as stable by the entity (e.g. considering temporary employment contracts, self-employment, etc.).
12. The entity, in calculating the average income for the purpose of assessing the
    consumer's solvency, takes into consideration the consumer's income, based on

33 Added by the Decision No. 47, dated 2.10.2024 of the Supervisory Council of the Bank of Albania.

at least data of the last 6 months, before the moment the financial analysis is performed.
3. The value of the debt service-to-income ratio (DSTI) provided for in the
paragraph 1 of this article, shall not exceed the value of 60%. This value may be higher in cases where the borrower has sufficient evidence, provided in the internal regulations of the entity, that the higher level of the DSTI ratio does not affect the common living expenses and consequently the payment of the loan obligations. In any case, net income after debt service shall not be lower than the borrowers’ reasonable living expenses.
4. The entity establishes internal procedures on the calculation of the debt service￾to-income ratio (DSTI), as well as defines more restricted requirements in
relation to the level of the indicator for borrowers with irregular or fluctuating income, or for borrowers whose income currency is different from the loan currency. 34Article 13/3 Restrictions on consumer credit agreements

1. The entity shall not conclude consumer credit agreements with persons under the
   age of 18.
2. The entity shall not conclude consumer credit agreements with persons qualified as
   disabled, or with persons who make decisions under the assistance of another person, limitations which affect the non-repayment of the credit obligation.
3. The entity shall not conclude consumer credit agreements during the time period
   from 22:00 to 07:00.
4. The entity shall not conclude consumer credit agreements with persons who are
   listed in the registers created by the entities for persons who are not allowed to conclude a credit agreement.
5. The entity shall not be exposed to more than 2 consumer credits to the same
   borrower, at the same time.
   35Article 13/4
   Credit risk management by microcredit financial institutions The requirements of articles 13, 13/1, 13/2 and 13/3 of this regulation shall be applied in the same way by the microcredit financial institutions, for consumer credit agreements.
   Article 14
   Loan classification
6. Non-bank financial institutions, being licensed to conduct lending, shall carry out the
   credit classification at least on quarterly basis.

34 Added by the Decision No. 47, dated 2.10.2024 of the Supervisory Council of the Bank of Albania. 35 Added by the Decision No. 47, dated 2.10.2024 of the Supervisory Council of the Bank of Albania.

2. Non-bank financial institutions, based on day past due of loan settlement, classify
   them in one of the following categories:
   a) “standard loans”, when the following conditions are met:
   i. the borrower's financial position and the expected inflows are completely
   sufficient to continue its activity and pay the liabilities,
   ii. the principal or interest is not paid completely for a period from 1 (one)
   to 30 (thirty) days after maturity term; b) “special mention loans”, when the following conditions are met:
   i. the borrower’s financial position and inflows are sufficient to pay liabilities,
   notwithstanding the financial difficulties of the momentum, and there are no improvement signs of borrower's future situation.
   ii. the principal or interest is not paid totally for a period from 31 (thirty-one)
   to 90 (ninety) days after maturity term:
   c) “sub-standard loans”, when the following conditions are met:
   i. the borrower's financial situation, capital and inflows are insufficient to
   regularly meet the defaults, or the institution does not have all the required or updated information needed to completely estimate the borrower’s financial position.
   ii. the principal and interest is not paid totally for a period from 91(ninety￾one) to 180 (one hundred eighty) days after maturity term:
   d) “doubtful loans”, when the following conditions are met:
   i. the borrower's financial situation, capital and inflows are insufficient to
   completely meet liabilities - the borrower manifests liquidity problems, and the borrower’s declaration as "insolvent/bankrupted" is assessed as a real possibility,
   ii. the principal or interest is not paid fully for a period from 181 (one hundred
   and sixty-five) days to 365 (three hundred and sixty-five) days after maturity term; e) “loss loans”, when the following conditions are met:
   i. the borrower's financial situation is clearly established to not fully meet
   the terms for the payment of principal and interest; all needed documentation to determine the financial situation is not available; the borrower is insolvent/bankrupted; the borrower is dead and none can pay the loan; the institution has taken legal action (the court has taken the final decision) to fulfil the process on collateral execution.
   ii. the principal or interest is not paid completely or interest is not paid totally
   for a period longer than 365 (three hundred sixty-five) days from maturity term.
3. If the terms on loans classification, set forth in paragraph 2 of this Article, are met for
   different type of loan classification, the institution shall classify the loan at the lowest category.
4. Regarding persons or related group of persons, for which more than one exposure
   is recorded, the institutions shall classify loans in a sole category, based on the lowest classification.

Article 15
Reserve funds’ rates to cover losses from loans

1. Depending on loans’ classification categories, non-bank financial institutions,
   establish respective reserve funds to cover potential losses arising from the failure of loans payment.
2. Reserve funds’ rates are calculated , respectively, as following:
   a) for “standard loans”………………………………………………...1% (on per cent); b) for “special mention loans”……………………………………….5% (five per cent); c) for "sub-standard loans”…………………....no lower than 20% (twenty per cent); d) for "doubtful loans”……………………………...no lower than 50% (fifty per cent). e) for "loss loans”…………………………no lower than 100% (a hundred per cent).
3. The rate for the calculation of reserve fund to cover losses from loans, for both
   categories set out in “a” and “b” paragraph 2, of this Article, shall be applied equally as regards both principal and interest; meanwhile, with regard to non-performing loans, the applied rate on the calculated interest is 100% (one hundred per cent) for each category.
4. Non-bank financial institutions shall not account the accrued interests starting since
   the classification moment as the non-performing loan.
5. 36The non-bank financial institution, except as provisioned in this regulation, in the
   cases of loans granted up to the amount of loans which are defined as micro credit, shall classify the loans and shall establish provisions to cover losses, in accordance with the criteria and rates laid down for the micro-credit financial institutions.
   Article 16
   Loan restructuring
6. The institutions, in an agreement with the borrower, shall restructure the loan, if the
   borrower fails to pay the credit in line with the terms and conditions of the original agreement, according to the criteria set out in the manual of the credit adopted from the steering bodies. Loan restructuring may take place, if, based on their analysis, the institutions deem that the borrower's financial situation will improve, or his activity income shall considerably increase and the borrower shall pay the whole loan in line with new conditions.
7. The restructured loan shall be classified at a higher category, and in no case not
   higher than the sub-standard loan, only if the following terms are met; a) the borrower has regularly paid the instalments (principal and interest) for 9 (nine) months from the restructuring day; b) the borrower has settled regularly not less than 3 (three) instalments (principal and interest).
8. Once the terms set forth in paragraph 2 of this Article are met, the restructured loan,
   shall be classified in compliance with the criteria stipulated in this chapter.

36 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania.

Article 17
Loans write-off from the balance sheet37

1. Loans shall be written-off from the balance sheet38 when the steering bodies decide
   and whenever the Bank of Albania deems and requests the writing-off.

2. The files of written-off loans are saved and assessed regularly, being reviewed not
   less than once in 6 (six) months from the steering bodies of the non-bank financial institution. Any proceeds deriving from the written-off loans are seen as non￾recurring income. SUBCHAPTER III CREDIT RISK MANAGEMENT IN MIROCREDIT FINANCIAL INSTITUTIONS
   Article 18
   Classification of loans for the microcredit financial institutions

3. Microcredit financial institutions shall classify loans, at least quarterly.

4. 39Micro-credit financial institutions, based on the days in arrears on loan repayment,
   shall classify them in one of the following categories:
   a) “standard loans”, the principal or interest is not paid for a period from 1 (one) to 30 (thirty) days from the maturity term; b) “special mention loans”, the principal or interest is not paid for a period from 31 (thirty-one) to 90 (ninety) days from the maturity term; c) “sub-standard loans”, the principal or interest is not paid for a period from 91 (ninety-one) to 180 (one hundred eighty) days from the maturity term; d) “doubtful loans”, the principal or interest is not paid for a period from 181 (one hundred eighty-one) to 365 (three hundred sixty-five) days from the maturity term; e) “loss loans”, the principal or interest is not paid for a period more than 365 (three hundred sixty-five) days from the maturity term.

5. Any loan granted to repay another loan, which has exceeded the term, whose
   conditions are partially modified, in case of extending the credit term owing to the difficult financial conditions of the borrower or insolvency, should not be classified at a higher category than the sub-standard one.

6. Any foreign currency-denominated loan granted to customers, whose income is in a
   different currency, shall not be classified at a higher category than sub-standard loans.
   Article 19
   Calculation of loan loss reserve fund

7. Depending on the classification category of loans, microcredit financial institutions
   shall establish reserve funds to cover possible losses on loan default.

37 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 38 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 39 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania.

2. 40The calculation of provisions are determined as follows:
   a) for “standard loans”.......................................................1% (one per cent); b) for “special-mention loans”...................no lower than 15% (fifteen per cent); c) for “sub-standard loans”.......................no lower than 30% (thirty per cent); d) for “doubtful loans” ..............................no lower than 75% (seventy-five per cent); e) for “loss loans”.....................................no lower than 100% (a hundred per cent).
3. The rate to calculate the loss loan provision for “standard” and “special mentioned”41
   loans shall be applied uniformly regarding both the principal and interest, whereas as regards the non-performing loans, the applied rate on accrued interest shall be 100% (one hundred per cent) for each category.
4. Microcredit financial institutions shall not account the accrued interests starting since
   the classification moment as non-performing loan.
   Article 20
   Loan write-off from the balance sheet42
5. Microcredit financial institutions shall write off the loan from the accounting balance,
   no later than the succeeding quarter, when it meets one of the following criteria:
   a) the loan is classified as non-performing loan and the microcredit financial institution concludes the borrower shall not pay the liability related to the loan; b) the borrower is dead and has no successor, guarantor or signer, who may settle the obligation; c) 43the principal or the interest of loan is not paid for a period of 365 (three hundred sixty-five) days from the repayment date, or d) the loan is considered as lost by the supervision inspectors and its respective writing-off is requested in the examination report.
6. Files of written-off loans are kept and assessed on ongoing basis being reviewed
   not less than once in six months by the steering bodies of the microcredit financial institutions. Any income from these written-off loans is considered as extraordinary income. 44SUB CHAPTER IV TREATMENT OF IMMOVABLE AND MOVABLE ASSSETS ACQUIRED AGAINST THE SETTLEMENT OF LOANS AND BUYING NON-PERFORMING LOANS
   Article 20/1
   General requirements
7. The entities shall design strategies and internal plans, and shall create the
   appropriate structures for selling immovable and movable assets acquired against credit’s settlement.

40 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 41 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 42 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 43 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 44 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania.

2. In case the entities cannot sell the immovable and movable assets acquired against
   credits’ settlement, within the first year of their acquisition, they shall create reserve funds for covering the loss.
   Article 20/2
   Calculation of reserve funds
3. The entities shall create reserve funds for immovable assets within a period no
   longer than 10 (ten) years from their acquisition date (their taking into ownership at the end of the forced execution process on the unpaid credits) and at no less than the rate in percentage of the assets’ accounting value, according to the following
   table:
4. The entities shall create reserve funds for movable assets at no less than 100% of
   the accounting value of the movable asset, in case they cannot sell these assets within a year from their acquisition date.
5. The entities, for movable and immovable assets, acquired up to the month of
   December 2017, for the purpose of calculating the reserve funds, in compliance with the stipulations laid down in this Regulation, shall consider the year 2018 as the first year.
   Article 20/3
   Purchasing non-performing loans
6. Non-bank financial institutions that purchase non-performing loans, within 3 months
   from the purchasing date, shall classify the loans based on their individual assessment, and in any event, no higher than “sub-standard” category, until the simultaneous fulfilment of the following conditions:
   a) the borrower has paid regularly the instalments (principal and interest) for a period of 9 (nine) months from the purchasing date; b) the borrower has regularly repaid at least 3 (three) instalments (principal and interest); c) 45 the source of repayment of the loans obligation according to letter “a” and “b” of this paragraph, shall not be a loan.

45 Added by the Decision No. 47, dated 2.10.2024 of the Supervisory Council of the Bank of Albania. First year 5% Second year 10% Third year 20% Fourth year 30% Fifth year 50% Sixth year 60% Seventh year 70% Eighth year 80% Ninth year 90% Tenth year 100%

2. The purchased loan, upon the fulfilment of the conditions laid down in point 1 of this
   Article, shall be classified by implementing the criteria set forth in this Chapter.
3. The entities shall calculate the reserve funds to cover losses from purchased loans,
   based on the buying price of the non-performing loans.
   CHAPTER IV
   RISK MANAGEMENT IN FINANCIAL LEASING INSTITUTIONS
   Article 21
   Maximum allowable exposure
4. Large exposure of an institution carrying out the financial leasing activity shall refer
   to exposures to one individual or group of related counterparties, equal or greater than 25% (twenty-five per cent) of the 46institution’s regulatory capital.
5. The institution shall not undertake large exposures, which taken together, exceed
   1200 % (one thousand two hundred per cent) of the 47institution’s regulatory capital.
   Article 22
   Classification of financial leasing contracts
6. Non-bank financial institutions, being granted a licence to lend, shall carry out the
   credit classification at least quarterly.
7. Non-bank financial institutions, based on the pass due days of loan settlement, shall
   classify them in one of the following categories:
   a) “standard loans”, when principal or interest is not paid completely for a period from 1 (one) to 30 (thirty) days after maturity term; b) “special mention loans” when the principal or interest is not paid completely for a period from 31 (thirty-one) to 90 (ninety) days after maturity term; c) “sub-standard loans” when the principal and interest is not paid completely for a period from 91 (ninety-one) to 180 (one hundred eighty) days after maturity term; d) “doubtful loans”, when the principal or interest is not paid completely for a period from 181 (one hundred eighty) days to 365 (three hundred sixty-five) days after maturity term; e) “loss loans”, when principal or interest is not paid completely or interest is not paid totally for a period longer than 365 (three hundred sixty-five) days after maturity term.
8. 48 Non-bank financial institutions, being granted a licence for the exercise of financial
   leasing, apply the requirements provided for in articles 16 and 17 of this regulation, for restructured exposures and exposures that will be written-off from the balance sheet.

46 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 47 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 48 Added by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania

Article 23
Reserve funds’ rates to cover losses from financial leasing contracts

1. Depending on classification categories, the institutions shall have in place adequate
   provisions to cover possible losses arising from the failure to pay the financial leasing contracts.
2. Provision rates are calculated, respectively, as following:
   a) for “standard category”.............................................1% (one per cent); b) for “special mention category”....................................5% (five per cent); c) for "sub-standard category”................no lower than 20% (twenty per cent); d) for "doubtful category”................no lower than 20% (seventy-five per cent); e) for "loss category”................no lower than 20% (seventy-five per cent);
3. The calculation rate for the reserve fund to cover losses for two categories set forth
   in "a” and "b", paragraph 2, of this Article, shall be applied equally as regards both principal and interest, meanwhile with regard to non-performing loans, the applied rate on the calculated interest will be 100% (one hundred per cent) for each category.
4. The institutions shall not account the accrued interests, starting from the
   classification of the leasing contract in the sub-standard category.
   CHAPTER V
   RISK MANAGEMENT IN FACTORING INSTITUTIONS
   Article 24
   General provisions
5. The factoring transactions shall not take place if the factor and involved parties (one
   or both parties) are persons or group of persons related with each other.
6. The institution shall not conduct factoring transactions with 2 (two) persons or group
   of related persons in a supplier- purchaser relationship.
   Article 25
   Classification of factoring contracts
7. The institutions shall classify factoring contracts on quarterly basis.
8. The institutions shall classify the factoring contracts, based on the days past due in
   payment settlements by the date set forth in the factoring contract terms, in one of the following categories:
   a) “standards”, when principal or interest is not paid completely for a period from 1 (one) to 30 (thirty) days after maturity term; b) “special mention”, when the principal or interest is not paid completely for a period from 31 (thirty-ne) to 90 (ninety) days after maturity term; c) “sub-standard”, when the principal and interest is not paid completely for a period from 91(ninety-one) to 180 (one hundred eighty) days after maturity term;

d) “doubtful”, when the principal or interest is not paid completely for a period from 181(one hundred eighty-one) days to 365 (three hundred sixty-five ) days after maturity term; e) “loss”, when the principal or interest is not paid completely or interest is not paid totally for a period longer than 365 three hundred sixty-five) days after maturity term.
3. 49 Institutions apply the requirements provided for in articles 16 and 17 of this
regulation, for restructured exposures and exposures that will be written-off from the balance sheet.
Article 26
Reserve funds’ rates to cover losses from factoring contracts

1. Depending on classification categories, the institutions shall have in place adequate
   provisions to cover possible losses arising from the failure of factoring contracts.
2. Reserve funds rates are calculated, respectively, as follows:
   a) for “standard”...........................................................................1% (one per cent); b) for “special mention”................................................................5% (five per cent); c) for “sub-standard”.......................................no lower than 20% (twenty per cent); d) for “doubtful”....................................................no lower than 50% (fifty per cent); e) for “loss”..........................................no lower than 100% (one hundred per cent).
3. The provision to cover losses for two categories set forth in "a" and "b", paragraph
   2, of this Article, shall be applied equally as regards both principal and interest, meanwhile with regard to categories set forth in "c" and "d", the applied rate on the calculated interest would be 100% (one hundred per cent) for each category.
4. The entities shall not account the accrued interests, starting from the classification
   of factoring contract into sub-standard category.
   50CHAPTER VI
   Repealed
   51Article 27
   Repealed
   52Article 28
   Repealed
   53Article 29
   Repealed

49 Added by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania 50 Repealed by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 51 Repealed by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 52 Repealed by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 53 Repealed by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania.

CHAPTER VII
Reporting requirements54
Article 30
Financial reports

1. The non-bank financial institution shall maintain accounts and prepare financial
   reports, in order to reflect its financial position accurately and in accordance with the accounting rules and methods, on individual or consolidated basis.

2. The accounts and financial reports are prepared according to the form and
   substance stipulated in the Law “On accounting and financial statements” and international accounting standards.
   Article 31
   Statutory audit55

3. The statutory auditor or audit company56 shall control and evaluate the compliance
   of the non-bank financial institution's financial reports with the Law “On accounting and financial statements” and with the international accounting standards.

4. The statutory auditor or audit company57 shall control and evaluate:
   a) profit and loss account; b) accounting balance-sheet; c) capital change; d) cash – flow statement; e) implementation of policies for writing-off the balance items; f) consolidated statements; g) internal audit function/unit; h) accounting entries; i) information systems j) accuracy and adequacy of reports submitted to the Bank of Albania k) adequacy of accounting procedures and regulatory compliance l) notes accompanying the financial reports. The statutory auditor or audit company59 shall verify the due maintenance of accounts and due financial registration, as well as the compliance with the methods stipulated by the Bank of Albania; he shall prepare annual reports together with internal audit opinion in relation to the accuracy and adequacy of the reports of the non-bank financial institution, relying upon financial statements and reports prepared by the institution in compliance with Law “On accounting and financial reports” and international accounting standards.

5. 60The statutory auditor or audit company shall be appointed every year by the
   general meeting of shareholders for the joint stock companies or by the assembly of partners for the limited liability companies.

54 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 55 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 56 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 57 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 58 Amended by the Decision No. 50, dated 3.7.2019 of the Supervisory Council of the Bank of Albania. 59 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 60 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania.

4. 61The statutory auditor or audit company shall be replaced for the auditing within a
   maximum period of seven years from the date of appointment and may re￾participate in the auditing of the entity after the fulfilment of at least two years term.
   Article 32
   Reporting at the Bank of Albania
5. Non-bank financial institutions shall report to the Bank of Albania in line with the
   requirements set out in the “Reporting system for the non-bank financial institutions approved by the Bank of Albania.
6. Non-bank financial institutions shall submit to the Bank of Albania, within the first half
   of the succeeding year, a copy of the annual report and a copy of the statutory auditor’ opinion, reflecting the financial and accounting position on individual and consolidated basis.
7. Non-bank financial institutions shall submit to the Bank of Albania, within the first half
   of the succeeding year, a copy of the annual report and a copy of the statutory auditor’s opinion, reflecting the financial and accounting position on individual and consolidated basis. The Bank of Albania shall set out and inform the non-bank financial institution on the time and the needed measures, to re-place exposures within the maximum allowed limits.
   Article 3362
   Repealed
   CHAPTER VIII
   SUPERVISORY MEASURES AND SANCTIONS63

Article 3464
Repealed
Article 3565
Breaches for which measures are taken

1. Bank of Albania shall take the measures stipulated in Articles 36 and 37 of this
   Regulation, in case the entity:
   a) fails to meet the supervisory norms for risk management; b) violates the provisions laid down in the legal and by-law acts in force66; c) violates the Law “On accounting and financial statements” and the international accounting standards;

61 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 62 Repealed by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 63 Amended by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 64 Repealed by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 65 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 66 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania.

d) does not report at Credit Registry; e) there are serious problems in the systems and programs of internal audit, in the policies of the activity, in the methods of operations or in the information systems of its management, despite the fact that these problems have influenced or not the financial situation of the entity; f) the general assembly has not convened or participation in the meetings of the general assembly is hampered; g) there are violations of the legal and sublegal acts on anti-money laundering and terrorism financing; h) conducts financial activities which are not included in the granted licence; i) there exists a discrepancy with the standards of a safe and sustainable activity, for a relatively long period; j) violates legal and sublegal acts, as a result of which the 67 non-bank financial institution or microcredit financial institucion has suffered a considerable financial loss or has started the bankruptcy process; k) violates the Law “On accounting and financial statements” and as a result it is not possible to determine the financial situation of the entity; l) has not accepted or has rejected the request of the Bank of Albania on interrupting the actions in violation of legal and sublegal acts, or has not taken the measures to eliminate the violations according to the terms set forth by the Bank of Albania; m) does not provide information or does not provide real and correct information during the examinations conducted by the Bank of Albania, as well as in the reports and correspondence with the Bank of Albania; n) there are concrete facts, on internal abuses, including high and unjustified remunerations to members of steering bodies, notwithstanding the entity does not result at the moment to have been damaged; o) there are voluntary or flagrant violations of legal and by-law acts from the staff and steering bodies or repetition of violations, which have resulted in material profits or favours; p) the micro-credit financial institution does not meet any longer the criteria to be characterised as such, for a period no shorter than 3 (three) months.
Article 3668
Supervisory measures

1. Bank of Albania, at the conclusion or during the examinations, and in any event of
   finding violations or special problem stipulated in Article 35, point 1 of this Regulation, shall take the following supervisory measures:
   a) shall order the interruption of violations and taking measures for the improvement of the situation; b) shall order the reduction of expenses; c) shall order the limitation of the growth of of high-risk assets and off-balance–sheet items; d) shall order the interruption of exposure increase against one person; e) shall order the increase of capital; f) shall lay down higher supervisory norms than those set out in the relevant by-law acts;

67 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 68 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania.

g) shall order the administrators or the partners to call the general assembly and propose the undertaking of the relevant measures; h) shall interrupt or limit the free use of a part or all assets, including the activity on granting loans and investments, in compliance with the rules approved by the Bank of Albania; i) when regulatory capital69 to total assets ratio is lower than the half of the minimum ratio set forth by the Bank of Albania and after it has taken one or some of the measures laid down in this Chapter, it may request the entity to adjust the situation within 6 months. The entity shall submit an action plan defining the way to adjust the situation. In case the entity fails to take the measures set out in the action plan, the Bank of Albania shall suspend or revoke the licence.
Article 3770
Sanctions

1. The Bank of Albania, at the conclusion or during the inspections, and in any event of
   finding violations or special problems, laid down in Article 35, point 1 of this Regulation, shall set the following sanctions:
   a) orders the interruption of remuneration to the members of the steering bodies and to the administrator; b) 71 revokes the approval granted for the administrator(s), the chairman of the administration board or the chairman of the audit committee of the entity; c) suspends one or more activities for a definite period; d) revokes the licence.
   Article 3872
   Particular requirements related to the supervisory measures and sanctions
2. The Bank of Albania, in applying the measures set out in Articles 36 and 37, of this
   Regulation, shall assess:
   a) circumstances where the violations were committed; b) consequences of the violations; c) repetition of the violations.
3. The Bank of Albania shall escalate the sanctions, in case the entity fails to implement
   one or more of the above measures.
4. The Bank of Albania may simultaneously apply the measures set out in Articles 36
   and 37,of this Regulation, in accordance with the requirements stipulated in point 1 of this Article.

69 Amended by the Decision No. 58, dated 21.12.2022 of the Supervisory Council of the Bank of Albania. 70 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 71 Amended by the Decision No. 50, dated 3.7.2019 of the Supervisory Council of the Bank of Albania. 72 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania.

Article 3973
Administrative and judicial appeal
The Bank of Albania, in the event of supervisory measures and sanctions proposed in accordance with Articles 36 and 37 of this Regulation, provides the right of administrative and judicial hearing to the interested entity, as laid down in Articles 92 and 93 of the Law on banks.
Article 4074
Temporary provision
Suspension of the application of the requirements of Chapter III, Article 14 and Article 15 of this Regulation, for the period March to May 2020. Chairman of Supervisory Council ARDIAN FULLANI

73 Added by the Decision No. 46, dated 6.9.2017 of the Supervisory Council of the Bank of Albania. 74 Added by the Circulating Decision No. 14, dated 12.3.2020 of the Supervisory Council of the Bank of Albania.