Credit returns to positive growth rates

Tirana Times
By Tirana Times December 2, 2016 12:30

Credit returns to positive growth rates

TIRANA, Dec.1 – Credit officially returned to positive growth rates in the third quarter of the year, overcoming a one-year period of contraction also affected by the write-off of non-performing loans from banks’ balance sheets artificially keeping credit at statistical negative growth rates.

Banks wrote off 26.6 billion lek (€191 million) in 2015 after a new regulation requiring the mandatory write-offs of loans that have spent three years in the “loss” category came into force at the beginning of 2015, according to the central bank.

Bank of Albania data shows lending to the economy rose by a mere annual 0.4 percent to 550.7 billion lek (€4 billion) in October 2016 after returning to positive growth rates last August. The amount is still lower compared to a peak level of about 600 billion lek in May 2015 just before credit plunged into negative growth rates.

Lower interest rates for loans denominated in the national currency, which have increased their share to the total credit to 40 percent, have also helped fuel the credit recovery but non-performing loans increasing to 21 percent continue keeping lending standards tight.

Average interest rates on lek-denominated loans slightly rose to 8.21 percent in Oct. 2016, up from 7.16 percent last September and 7.95 percent a year ago but an average of 12 percent in the previous years. Meanwhile, average interest rates on deposits stood at an almost all-time low of 0.8 percent last October as the key rate stands at a historic low of 1.25 percent.

Central bank governor Gent Sejko has said lending prospects have improved as the economy moves to higher growth rates.

“The low levels of interest rates, a liquid and well-capitalized banking system, are positive prospects for the credit growth and the financing of the country’s economic growth. However, the banks’ lending policies remain conservative as a result of tighter regulatory standards at a European level but also because of high credit risk aversion,” Sejko has said.

Governor Sejko says that the real credit to businesses rose by 3.3 percent in Sept. 2016 if the effects of the write-off of bad debt from banks’ balance sheets is taken into account.

The poor recovery of lending also reflects sluggish demand and uncertainties by both the business community and households as the country’s economy continues growing at sluggish growth rates of 2 to 3 percent, mainly driven by some private sector energy-related investments.

Lending to the economy has been striving to maintain positive growth rates since 2012 after growing by 30 to 50 percent annually in the pre-crisis years, an average of 10 percent from 2009 to 2011 and sluggish growth rates of 1 to 3 percent in the past few years.

 

Tirana Times
By Tirana Times December 2, 2016 12:30