Pages: 1-8

Abstract

In countries with a developing economy like Albania based on the use of cash and the total credit available to the general public it is limited. The opportunity of credit impact to increase the demand for goods and services, thus increasing the living standards and economic stability. Significant exposures to market and liquidity establish special challenges to the process of bank lending. Sensitive exposures to the market include exchange with foreign currencies and financial derivatives contracts. Random and uncertain nature of exposure of these instruments requires that banks have the ability to assess the probability distribution of exposure size in the future. It is also important its impact on the degree of financial leverage, the same for the bank and the borrower. During the development of the business strategies, many banks face a natural dilemma between choosing to specialize in key areas with the purpose to achieve a leadership position in the market, or diversifying their flowing income. This happens specifically when the banks are involved in some unstable segments of market. This dilemma has been aggravated by the intensification of competition between banks and non-banks but realize some lending activities, which are a bank feature, like lending corporate credit for investment.