Loan, deposit interest rates remain unchanged

TIRANA, Oct. 30 – Average interest rates on lek-denominated loans remained unchanged at 11.1 percent in Sept. 2012, the same to Sept. 2011 despite the central bank having lowered the key interest rate by 1.25 percent to 4 percent over this one-year period. The unchanged interest rate reflect the poor transmission of the monetary policy at a time when bad loans have reached a record 21 percent and demand for new loans stands at low levels. Interest rates on 1 to 3- year lek denominated loans climbed to 15 percent in Sept. 2012, three times higher compared to deposit interest rates, according to Bank of Albania data. Interest rates on loans maturing in 5 years are rather lower at 10.3 percent.
Meanwhile, interest rates on Euro-denominated loans dropped to 7.2 percent in Sept. 2012, down from 7.5 percent in Sept. 2011, reflecting the European Central Bank record low key interest rate of 0.75 percent.
While banks have kept interest rates on lek-denominated loans unchanged year-on-year, the drop in deposit interest rates has been at 0.7 percent. Interest rates 12-month Lek denominated deposits dropped to 5.2 percent in Sept. 2012, down from 5.9 percent a year ago. Interest rates on deposits in Euro also dropped to 3 percent down from 3.3 percent in Sept. 2011.
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. Meanwhile, 12-month T-bill yields hit another record low in this week’s auction when they dropped to 6.61 percent, down from 6.78 percent in the previous auction and a record 7.5 percent last March, registering the lowest rates for this year. Since Sept. 2011 the central bank has cut the key interest rate by 1.25 percent to 4 percent on low inflation pressures but the moves have been hardly reflected on lowering interest rates for lek-denominated loans and T-bill yields.
Three months after the Bank of Albania launched its interest rate and commission transparency project for the 16 commercial banks operating in Albania, information on the central bank’s website is only partly available. While information on commissions and deposit interest rates is available for almost every bank, information on interest rates for consumer and business loans are available for only few banks.