Banks continue to ease lending standards

TIRANA, May 24 – Lending standards have to continue to ease both for businesses and individuals even in the first quarter of this year, indicating a positive trend after the tough times during the first three quarters of 2010. Findings of a survey carried out by the Bank of Albania published this week show lending standards eased for both small and medium-sized enterprises but remained unchanged for corporations. The survey says businesses’ demand for credit remained unchanged while consumers’ demand rose, especially to finance consumption and new homes. Banking experts expect credit to individuals to continue its easing trend even in the second quarter of this year but say credit to businesses will remain at the same levels. The report says credit to businesses had its standards eased both for loans to finance floating capital and investments mainly because of increased competition and banks’ liquidity. Experts expect interest rates for credit in the national currency, lek, to increase in the second quarter of this year mainly due to the monetary policy followed by the Bank of Albania– which late last March increased the key interest rate by 0.25 percent to 5.25 percent. The only facilitating policies banks applied during the beginning of this year were the increasing of the amount of approved loans; while the risk margin, loan maturity and demand for collateral remained strictly regulated. Experts say the sharp depreciation of the lek against the Euro which has reached a record high at 141 lek, is another reason not to borrow in Euros for those who are paid in lek. However, lending in foreign currency especially Euro, continues to account for 70 percent of the total portfolio– mainly due to the difference in interest rates, revenues and purchases made in Euro, especially in the construction sector.
Experts describe bad loans as the key factor in preventing credit boost. Businesses are also becoming hesitant to make new investments because of an ongoing saving trend by consumers. Bad loans, which the central bank and financial experts warn is a key risk to Albania’s banking sector, continued rising even in the first quarter of this year while banks’ profits were reduced by more than 50 percent. Latest data published by the Bank of Albania show bad or non-performing loans climbed to 14.42 percent of the total portfolio in the first quarter of 2011, up from 13.61 percent in the final quarter of 2010 and 11.46 percent in the first quarter of 2010. Meanwhile, the banks’ net profit more than halved to 668 million lek (6.7 million dollars) in the first quarter of 2011, down from 1.5 billion lek (15 million dollars) at the end of the first quarter of 2010.