12-month T-bill yields at new historic low of 3.73%

TIRANA, Nov. 13 – T-bill yields hit a new record low this week when the Bank of Albania auctioned 11.3 billion lek (Euro 79 million) on behalf of the Albanian government. Yields on 12-month T-bills, which are the key instrument of domestic public debt, dropped to 3.73 percent in this week’s auction, slightly down from 3.78 percent in the previous auction, almost half of the record 6.6 percent in January 2013.
Meanwhile, six-month T-bill yields dropped to 3.49 percent in this week’s auction, down from 3.68 percent in the previous auction and 6.08 percent in January 2013, according to central bank data.
The drastic cut to T-bill yields reflect the positive transmission of the easier monetary policy the central bank has followed and the credit shrink during the first three quarters of this year as bad loans have reached a record 25 percent.
Since September 2011, the Bank of Albania has cut the key interest rate by 1.75 percent to 3.5 percent in several consecutive interventions, but the moves have only been reflected on lower T-bill yields and interest rates for lek-denominated deposits.
Meanwhile, average interest rates on lek-denominated loans have remained almost unchanged during the past two years, reflecting the failure of the consecutive cuts to the key interest rates in the past two years.
The high level of euroisation in the Albanian banking system is a potential source of instability, warns the European Commission in its 2013 progress report in Albania.
“Such high euroisation inhibits monetary policy’s effectiveness and could expose banks to currency mismatches or indirect credit risks; it is therefore a potential source of instability in the financial system,” warns the report.
Meanwhile, the IMF says the transmission of easier monetary policy into faster credit growth remains hampered by increased risk aversion in the economy and higher NPLs in the banking system. Differently from loans, 61 percent of which are issued in foreign currency, mainly in Euro, the situation with deposits appears more balanced with lek-denominated deposits accounting for 53 percent of total deposits.