Standing Facilities

Standing facilities are instruments available to banks at their own initiative without restriction under normal circumstances.  They consist of instruments providing and absorbing overnight liquidity.  The interest rates on these instruments provide the corridor in which the money market interest rates can fluctuate.

OVERNIGHT DEPOSITS

a. Type of instrument

The overnight deposit is a short-term investment instrument available to commercial banks for investing their overnight excess liquidity at a predetermined interest rate.  Under normal circumstances, the interest rate of the deposit facility provides a floor for the overnight market interest rate.

b. Legal nature of the instrument

Commercial banks can use the overnight deposit to place unlimited amounts of liquidity with the Bank of Albania.  On the other hand, Bank of Albania, in accordance with its aims, reserves the right to reject the request of commercial banks for overnight deposits with no obligation to provide any explanation.  Bank of Albania does not provide collateral for the overnight deposits.

c. Terms of use for the instrument

All commercial banks and foreign bank branches that have an account with the Bank of Albania and exercise their activity in Albania, may access overnight deposit facility.  The commercial banks have to submit their requests within the deadline set by Bank of Albania and to agree on the interest and maturity on the placed deposit.

d. Maturity and interest term

The maturity of this instrument is overnight.  The interest and the full amount have to be paid to the bank on the next working day.  The maturity day may be postponed only when the next working day is a holiday. The interest on the overnight deposit is pre-determined and it is calculated on a 365-day basis.  The interest paid to the commercial banks is 1 p.p., on annual basis, lower than the interest rate of the repurchase agreements with a maturity of one week, determined by the Supervisory Council of the Bank of Albania.

OVERNIGHT LOAN

a. Type of instrument

The overnight loan is a short-term debt instrument available to the commercial banks.  It is a fully collateralized loan, which is used to satisfy commercial banks’ overnight liquidity needs. Under normal circumstances, the interest rate on the loan facility provides a ceiling for the overnight market interest rate.

b. Legal nature of the instrument

The Bank of Albania provides overnight collateralized loans upon the request of commercial banks. The collateral on these loans consists of one security/some securities which are valued under pre stabilized conditions. Assuming the satisfaction of the debt obligation, the ownership of the asset is retained by the debtor (the bank which needs liquidity) during the term of the contract. In case the debtor fails to satisfy the obligation, the ownership of the asset passes to Bank of Albania.  Bank of Albania, in accordance with its aims, holds the right to refuse the banks' request for overnight loan providing no further explanations.

 

c. Terms of use

All commercial banks and foreign bank branches that have an account with the Bank of Albania and exercise their activities in Albania may use the overnight loan facility. Banks, which at the end of the transactions result with liquidity shortage, may apply for an overnight loan. If the bank fails to repay the intra-day credit, it is automatically converted into overnight loan.  Bank of Albania notifies the bank in case of automatic extension of the overnight loan and for the automatic freezing of the collateral.  Apart the obligation to have enough collateral, there is no other limit over the amount a bank can obtain through this facility.

d. Maturity and interest term

The maturity of this instrument is overnight. The Bank of Albania receives the interest payment and the initial amount on the next working day. If the next working day is a holiday, the interest payment is postponed to the next working day. The interest rate on the overnight loan is announced in advance and is calculated on a 365 day convention.  This rate is 1 p.p. higher than the rate on one-week Repo and Reverse Repo Agreements decided by the Supervisory Council.