The Risk of Exhange Rate and its Connection with the Performance of the Banking Sector in Albania. - Economicus

by, Sokol Ndoka, Ermela Kripa

Abstract

The exchange rate is a highly debated issue among economists regarding its impact on the performance of financial institutions in general and performance of banks in particular. In this paper we will study whether the performance of banks in the banking system in Albania is affected by the changes of exchange rate for a period of 10 years (2005- 2014). For a more detailed analysis to measure the impact that the change of exchange rate has on the performance of banks in Albania will be examined the annual data for 10 years, from 2005-2014.The purpose of this paper is to see if there was a negative or a positive impact of exchange rate fluctuations on bank performance in Albania. The research question that arises in this paper is: How does the exchange rate risk affect the performance of banks in Albania? The hypothesis that we want to prove in this paper is: the exchange rate has not had a high impact on the performance of banks in Albania. To answer the research question and hypothesis will be reviewed the literature on the exchange rate, will be used an analytical, comparative and econometric methodology. The data that will be used will be secondary data obtained from official websites of banks and the Bank of Albania. We will take as a measure of exchange rate the net open position that constitutes the independent variable, and the total income before tax to measure the bank performance, as the dependent variable.