Banks’ profits climb to $36 mln

TIRANA, Nov. 1 – Banking sector profits posted a positive 3.6 billion lek (36 million dollars) figure, during the first half of this year, registering a significant year-on-year increase, the central bank said in its latest financial stability report. The rise in the financial profit was due to higher net interest income and a better control over operating costs. However, the positive financial profit had a high concentration and the banking sector still faces loan quality problems, with non-performing loans accounting for 12.2% of total loans. Due to high credit risk perception, the banking sector slowed down the annual credit growth rate, cut its average maturity term and further decreased the consumer credit, said the central bank report. Provisions for hedging against credit risk increased by about 20%, accounting for 52.5% of non-performing loans at the end of the first half of the year.
The Bank of Albania stressed that banks should continue to prudentially monitor the credit quality performance and timely set aside appropriate provisions. Banks’ relevant structures should assess the non-performing loan concentration by sector and borrower, and try to increase the loan portfolio diversification. Paying attention to regulatory requirements, banks should support borrowing entities that incur temporary difficulties but also have any worthwhile project that ensures loan repayment. In case this opportunity is small, relevant bank structures should implement contractual rights in order to recover the loan, suggested the report.
Over the first half of 2010, Albania’s financial and banking sector was stable. The need to stabilize and improve credit quality is the main challenge posed to the banking sector.
Albania’s financial system expanded during the first half of the year, increasing its share to Gross Domestic Product (GDP), at 84.5%. The banking sector continued remaining the dominant segment of financial intermediation. Its assets rose to ALL 934.7 billion, accounting for 94.4% of the financial system’s total assets.
Good operation of payment systems infrastructure also contributed to expansion of banking sector activity. The banking activity was well-capitalized and capital adequacy indicator remained steady, at 16.2%. Liquid assets accounted for 27.8% of the banking sector’s total assets. Meanwhile, loans to deposits ratio amounted to 63.2%.
Capitalization level and operational liquidity positions are good. At sectoral level, net operating income has improved. Stress-testing of banking sector stability against any potential adverse economic or financial effects showed resilience.
Financial and banking system risks posed from domestic economic developments over the first half of 2010 dropped. The main positive factors include curbing of budget and trade deficits, the exchange rate stability, the moderate inflationary pressures and the interest rate cut. During this period, the interbank market liquidity was sufficient to meet the commercial banks’ short-term liquidity needs. Also, the financial market operated smoothly. However, these positive developments would have a more lasting impact if they promoted a more rapid improvement of the financial position of both enterprises and individuals/households, thereby stimulating the domestic demand, concluded the report.