12-month T-bill yields remain unchanged

TIRANA, May 1 – T-bill yields showed signs of stability in this week’s Bank of Albania auction when they remained unchanged ending their rising trend despite the central bank having lowered the key interest rate by 1 percent to a record low of 4.25 percent in four consecutive interventions since Sept. 2011. Albania’s central bank auctioned 12.4 billion lek in this week’s auction, of which 9.6 billion lek in 12-month T-bills. 12-month T-bill yields remained unchanged at 7.35 percent while 3-month T-bill yields slightly rose by 0.01 percent to 5.31 percent.
Experts explain the situation with the sharp rise in bad loans, currently at 19 percent, and public debt at the legal limit of around 60 percent of the GDP which is making investors perceive increased risk in investing in government securities.
The Bank of Albania organizes 3-month and 6-month T-bill auctions every month and 12-Month T-Bill auctions every two weeks. T-bills are issued and guaranteed by the Ministry of Finance on behalf of the Albanian government.
Although having lowered the key interest rate by 1 percentage point to a historical record low of 4.25 percent since Sept 2011, the Bank of Albania interventions in the monetary policy have not been reflected at all in lowering interest rates for loans in the domestic currency lek, and T-bill yields. Latest data published by the Bank of Albania show average interest rates for loans in lek rose to 11.4 percent in Feb. 2012 when the key interest rate was at 4.5 percent compared to 11.1 percent in Sept. 2011 when the key rate stood at 5.25 percent.
The opposite has happened with interest rates for Euro-denominated loans which hold the majority of 65 of credit in Albania. Since Nov. 2011, when the European Central Bank cut the key interest rate by 0.25 percent to 1 percent, average interest rates for loans in Euro have dropped from an average of 7.5 percent in Sept. 11 to 6.9 percent in Feb. 2012.
The key interest rate cut have also been reflected in deposit interest rates which have dropped from an average of 5.9 percent in Sept. 2011 to 5.6 percent in Feb. 2012.
12-month T-bill yields have also been on an upward trend since Dec. 2011 climbing from 6.95 percent to 7.34 percent in March 2012.
The key interest rate cuts have also had a minor impact on boosting lending as bad loans, at a record 19 percent in 2011, have forced banks to considerably tighten lending standards. Businesses have also cut demand for new loans as domestic consumption remains at low levels and the market seems to have reached a saturation point.
Latest Bank of Albania data show credit to the economy grew by only 0.12 percent in Jan-Feb. 2012 compared to Dec. 2011 but was up 11 percent compared to the first two months of 2011.