Contingent Convertible Bonds (CoCo bonds) and their market development in Albania - Economicus

By Lira SINANI, Msc.

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Purpose: This paper aims to assess the potential contribution of Contingent Convertible Bonds (CoCo) to financial stability within the Albanian banking sector in the context of European Union integration and financial crisis management. As financial shocks continue to challenge global economies, innovative financial instruments such as CoCo bonds have emerged as crucial tools for enhancing banking sector resilience. The study seeks to evaluate the positive effects of CoCo bonds and their feasibility within Albania’s financial landscape, addressing the central research
question: “How would the utilization of CoCo bonds impact the financial market in Albania during a financial crisis?”
Methodology: The research adopts a qualitative approach, combining an extensive literature review with an analysis of Albania’s financial regulations, extraordinary interventions, and public offerings. Content analysis of key regulatory frameworks and case studies will help uncover patterns in how CoCo bonds have been employed in other markets and their potential implications for the Albanian banking system. The study will explore regulatory alignment with Basel III requirements and assess the responsiveness of Albania’s financial sector to innovative capital instruments.
Findings: Preliminary findings suggest that CoCo bonds can significantly contribute to the stability and resilience of Albania’s banking system by providing an automatic capital buffer during financial crises. However, potential challenges such as shareholder dilution, investor risk perception, and regulatory compliance must be carefully managed. The study highlights the role of CoCo bonds in reducing public debt burdens, improving non-performing loan (NPL) ratios, and enhancing lending capacity, all of which are critical criteria for Albania’s EU accession process.
Value: This paper contributes to the ongoing discourse on financial crisis management by offering insights into the practical application of CoCo bonds in emerging markets like Albania. The study provides valuable recommendations for policymakers, regulators, and financial institutions regarding the adoption of innovative financial instruments to foster a more resilient and EU-compliant banking sector. By offering a comprehensive examination of CoCo bonds within the Albanian context, this paper aims to inform future strategies for financial sector development and economic integration.