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TIRANA, May 16 (Reuters) - The World Bank said on Friday it had approved a loan of $100 million to Albania to improve the supervision of local banks and their safety nets and help reduce bad loans.
The loan follows Albania's 3-year 330.9 million euro ($453.88 million) deal with the International Monetary Fund in February to support the country's reform and financing needs.
"The loan aims to strengthen the financial sector regulatory and supervisory regime and mitigate vulnerabilities of the bank and non-bank sectors," the World Bank said in a statement.
The 16 lenders in Albania, mostly owned by parent banks from the euro zone, have been well-capitalized but have been reluctant to approve fresh credits because of bad loans that amount to about a quarter of total lending.
"High financial euroization, strong financial links between banks and government debt holdings, and the dominant presence of subsidiaries of foreign banks increase the banking sector's vulnerabilities to potential shocks."
It said the loan backed reforms aimed at improving the banks' crisis-preparedness and speeding up the resolution of the non-performing loans (NPL) issue.
"As a result of these measures, the ratio of NPLs is expected to fall considerably by early-2015. Reducing NPLs will safeguard financial stability and better enable banks to respond to credit demand," the World Bank said.
Albania has already passed laws allowing banks to write off overdue bad loans and to restructure loans based on good practice and bad loan recovery for large borrowers. ($1 = 0.7291 Euros) (Reporting By Benet Koleka, Editing by Zoran Radosavljevic and Gareth Jones)