Banks expected to further tighten lending standards

TIRANA, May 24 – Second-tier banks operating in Albania say they will further tighten lending standards in the second-quarter of this year for both businesses and individuals, according to a recent survey conducted by the central bank. Lending criteria are expected to tighten for small and medium sized enterprises as well as corporations, differently from the first quarter of this year when standards for businesses were eased.
The same thing is also expected for loans taken to finance circulating capital and investments. However, banking experts expect an increase in demand for business loans during this quarter.
Banks also expect to tighten lending standards for individuals but to a lower degree compared to the first quarter of 2010. This measure is expected to be at the same level for both consumer and home loans.
Individuals’ demand for loans is also expected to be higher during this closing quarter.
Meanwhile, the net percentage of banks expecting an increase in their lending activity in the national currency, lek, for the second quarter of 2010 increased by 30.6 percent, up from 25.9 percent in the previous survey. Banks don’t expect changes to the progress of lending in foreign currency.
The main factors influencing on the demand for foreign currency loans, mainly in Euro, were the difference in interest rates with lek, source of revenues in foreign currency, and prices in foreign currency.
Lending standards during the first quarter of 2010 were eased for businesses but further tightened for individuals, the Bank of Albania said in its monetary policy report. The progress of lending standards for businesses was in line to the banks’ expectations in the fourth quarter of 2009. Standards applied to commercial loans were in general eased only for corporations, and remained tightened for small and medium enterprises. The main factors influencing on the tightening of standards for commercial loans were the specific problems of the sector where businesses operate, the macroeconomic situation, and problematic loans.
Meanwhile, loans to individuals were tightened because of the individuals’ financial situation, the amount of bad loans and the bank’s liquidity. The decisions of the central bank was the only factor which eased lending standards for both businesses and individuals.
Banking trends show the current ease in approving new loans will be temporary and is expected not to continue during the second quarter of 2010 despite rising demand by businesses and individuals.