TIRANA, March 15 – Total lending in January 2011 shrank by 462 million lek (4.6 million dollars) compared to December 2010, but was us up 37.3 billion lek year-on-year, according to the latest data by the Bank of Albania. Central bank data show total lending was up 8 percent in January 2011 mainly because of the sharp increase in lending to businesses, which accounts for 70 percent of total loans.
Lending to businesses in Jan. 2011 slightly dropped by 533 million lek compared to December 2010 but was up 34.6 billion lek y-o-y, registering an 11 percent increase y-o-y. Meanwhile, lending to individuals in Jan. 2011 slightly increased by 72 million lek in compared to December 2010 and was up 2.7 billion lek compared to Jan. 2010 or 2 percent.
The majority of lending to businesses is granted in Euro, which accounts for 63 percent of total lending of 329.8 billion lek. Second comes the national currency, lek, with 27 percent of total lending.
The majority of business loans are taken to finance purchase of equipment and real estate.
Lending to businesses had almost remained frozen from May 2010 to October when it increased by a total of only 10 billion lek but saw a boost in the fourth quarter of 2010 when standards were eased. The “Trade and repair of cars and household equipment” held one-third of the total business loans, with 114.2 billion lek at the end of January 2011. The loan portfolio in this group increased 14 percent year-on-year. Second came lending to the crisis-hit construction sector whose lending rate increased by 8 percent, 4.5 billion lek y-o-y in Jan. 2011. The processing industry ranks third with 14 percent of the total loans.
The International Monetary Fund expected the private credit growth to drop to 8.6 percent of the GDP in 2010, down from 10.3 percent in 2009 and 32.1 percent in 2008 when the global crisis started.
Standards ease
Lending standards marked a turning point in the final quarter of 2010 easing both for businesses and individuals after tough times in the first three quarters of last year. The results are confirmed by a recent lending survey published by the central bank which explained the ease of standards with the banks’ improved liquidity, capital adequacy and increased competition among the 16 commercial banks operating in Albania.
Despite the number of businesses applying for loans registering a slight increase in the fourth quarter of 2010, their overall demand for loans remained at negative rates, confirming the difficult situation the business community is facing because of falling purchasing power and a continuing saving trend by individuals. Lending standards during October-December were eased more for small and medium-sized business rather than corporations. However, the rising bad loans, the specific problems of the sector where businesses operate and the macroeconomic situation continued affecting the tightening of standards even during the fourth quarter of 2010, said the Bank of Albania survey. The only facilitating policies banks applied during the end of 2010 were increasing the amount of approved loans while the risk margin, loan maturity and demand for collateral remained tight.
The need to finance inventories and floating capital were the main factors which increased demand for business loans in the fourth quarter of 2010.
Lending standards for individuals eased during the final quarter, in line with the central bank’s expectations in the third quarter survey. Home loan standards continued remaining favourable despite slightly tightening compared to the previous quarter while consumer loan standards further eased.
Banks expect to grant more loans in the national currency, lek, rather than Euro during the first quarter of this year because of expected lower interest rates and facilitating policies by the central bank which continues keeping the repo rate unchanged at 5 percent, the lowest historical level, since July 2010. Experts say the sharp depreciation of lek against the European currency which has reached a record high at 140 lek, is another reason not to borrow in euro for those who are paid in lek.
However, lending in foreign currency especially Euro, continues accounting for 70 percent of the total portfolio mainly because of the difference in interest rates, revenues and purchases in euro, which is the currency the construction sector operates with since years now.
Banks expect lending standards to further ease for businesses but further tighten for individuals in the first quarter of this year. Banking experts say home loans standards will further tighten during the first three months of 2011 despite an expected increase in demand by individuals.
