Credit to individuals continued remaining at negative growth rates, shrinking by 1.5 percent in the first quarter of the 2012 year-on-year
TIRANA, May 7 – Both lending and deposit growth rates stood at the same levels of around 11 percent during the first quarter of 2012, revealing an ongoing saving trend and hesitation about new investments as domestic consumption fails to recover. Tighter lending standards as one in five loans is now officially considered non-performing and poor demand by both consumers and businesses have also affected credit growth. In the 2009-2011 period, lending grew at moderate rates of 10 to 13 percent annually compared to the pre-crisis levels of 30 to 50 percent.
Latest Bank of Albania data show total credit to both businesses and individuals decelerated to 11.24 percent during the first quarter of this year, down from 13 percent in the final quarter of 2011 compared to the same period a year ago. The situation is a result of poor performance in the first quarter of this year when total lending has risen by only 7.6 billion lek or 1.44 percent compared to the final quarter of 2011.
Lending to businesses also decelerated to 16.6 percent in the first quarter of 2012 y-o-y, down from 17.9 percent at the end of 2011.
Credit to individuals continued remaining at negative growth rates, shrinking by 1.5 percent in the first quarter of the 2012 year-on-year. Bank of Albania data show banks have considerably cut lending for home loans in all of Albania, biggest regions. Home loans in Tirana fell by 7 percent y-o-y to around 49.5 billion lek in the first quarter of this year.
The data are in line with the Bank of Albania latest survey showing that both individuals and businesses had their lending standards further tightened in the first quarter of 2012 despite demand for new loans reported to have considerable dropped. Specific problems in the sector where businesses operate, the situation with bad loans, and the general macroeconomic situation are the key factors contributing to tougher lending standards for businesses.
Most credit to businesses is taken in Euro, accounting for 60 percent of the total, while the national currency lek has a 30 percent share. Credit to individuals accounts for 26.7 percent of total credit with lending in Euro having a majority of around 55 percent.
Aimed at stimulating growth by increasing lending, the central bank’s interventions in the monetary policy are being hardly reflected in the banking sector which is suffering a sharp rise in the bad loans portfolio and profits as a result.
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 12 percent in March 2012 when the key interest rate was at 4.25 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. However, in March 2012 average interest rates for Euro-denominated loans rose again to 7.5 percent.
The key interest rate cuts have also been reflected in lek-denominated deposit interest rates which have dropped from an average of 5.9 percent in Sept. 2011 to 5.7 percent in March 2012.
12-month T-bill yields have also been on upward trend since Dec. 2011 climbing from 6.95 percent to 7.34 percent in March 2012.
After panicky withdrawing around 10 percent of total deposits (Lek 62.7 bln, Euro 440 mln) in the final quarter of 2008 and in early 2009 in the face of spillovers from instability of global financial markets, Albanians have returned to deposits and cut down on credit seeing less investment opportunities in a saturated market where consumption is declining for consecutive quarters as shown by INSTAT data on retail sales.
Central bank data show deposits grew by around 193 billion lek (Euro 1.35 bln) to 881.3 billion lek in 2011, registering an 11.7 percent increase, lower compared to the 18.5 percent growth rate in 2010, but better compared to 2008 and 2009 at 2.2 percent and 6 percent respectively.
Meanwhile, new loans rose by 58.4 billion lek (Euro 410 million) to 531 billion lek, recording a 13 percent increase, the highest annual growth rate since 2008 when lending grew by 35 percent. In the global crisis year of 2009 credit growth slowed down to 11 percent and decelerated to 9.6 percent in 2010, according to Bank of Albania data.
Differently from loans, 63 percent of which are issued in foreign currency, mainly in Euro, the situation with deposits appears more balanced with lek deposits accounting for 52 percent of total deposits.
The majority of savings in the Albanian banking system are owned by only a few thousand people, an indicator showing the gap between the poor and the rich is growing wider. Some 55 percent of the total amount of deposits in Albania belongs to only four percent of depositors, according to data by the Deposit Insurance Agency.
The Deposit Insurance Agency says 96 percent of individuals have their deposits up to 2.5 million lek, making them fully covered by the agency’s insurance scheme.
