ABSTRACT
The economies of developing countries like Albania are characterized by high demand for credit due to increasing investment. The high risk-associated credits leads to high returns. Credit risk is one of the most important kinds of risk in the banking sector that affects bank performance, as it exhibits the loss probability because of the failure of the debtor to fulfill its obligations to the bank. In June 2016 the level of Non Perfoming Loans in Albania appeared in 24.4% of total loans, representing a major obstacle to the development and performance of the banking sector in Albania. Commercial banks in Albania appear very profitable, significantly higher than bank returns in other parts of the world. Credit to enterprises, foreign currency credit and medium-term credit give the main contribution to this increase. For individual banks, the increase in provisioning expenses for credit affected the establishment of the financial loss.
