TIRANA, April 2 – Lending continues remaining at negative growth rates even in early 2014 while deposits continued their downward trend also affected by a sharp reduction in interest rates.
Bank of Albania data show lending shrank by 2 percent year-on-year in February 2014 while deposits slowed down to only 1.4 percent.
Bank of Albania data show lending to the economy shrank by 1.25 percent in 2013, registering the first decline in the past five global crisis years. After growing by 30 to 50 percent annually in the pre-crisis years, lending grew by an average of 10 percent from 2009 to 2011 but sharply decelerated to 2.36 percent in 2012 as bad loans hit more than 22 percent.
Meanwhile, deposits slowed down to 2.1 percent after growing by 6.3 percent in 2012, 11.4 percent in 2011, 18 percent in 2010 and 6.8 percent in 2009, unveiling a drop in households’ savings at a time when both consumption and investments remain at negative growth rates.
A sharp increase in non-performing loans which in the final quarter of 2013 slightly dropped to 23.2 percent is the key reason for the decline in lending which has led banks to tighten standards. Poor demand for loans and high interest rates also remain a barrier.
In its latest meeting, the Bank of Albania supervisory board decided to keep the key interest rate unchanged at 2.75 percent but said that it would continue following an easy monetary policy considering the expected economic and financial developments.
Bank of Albania governor Ardian Fullani said consumption and private investments remained sluggish even in the first two months of 2014 affected by poor business and household confidence, a slowdown in disposable income, tight lending standards and the presence of non-utilized production capacities.
Interest rates
Interest rates on loans denominated in the national currency registered a slight drop in February 2014, positively reflecting the consecutive cuts to the key interest rate by the central bank. Meanwhile, interest rate on lek-denominated deposits stand at historic lows.
Bank of Albania data show average interest rates on lek-denominated loans dropped to 9.14 percent in February 2014, down from 9.19 percent in January 2014 and 11.78 percent in February 2013.
Average interest rate on Euro denominated loans dropped to 6.94 percent, down from 7.25 percent in January 2014 and 7.03 percent in February 2013.
With the key interest rate on lek and the euro at historic lows, investing in deposits is becoming less and less profitable as both interest rates on lek and euro denominated loans stand at a record low. After hitting a historic low of 2.39 percent in January 2014, interest rates on 12-month lek-denominated deposits slightly rose to 2.46 percent in February 2014, more than half compared to 5.25 percent interest rate in February 2013.
Interest rates on 12-month Euro denominated deposits remained unchanged at 1.46 percent in February 2014, the same compared to the previous two months and 2.79 percent in February 2013.
Since September 2011, the Bank of Albania has cut the key interest rate by 2.5 percent to 2.75 percent in several consecutive interventions, but the moves have only been reflected on lower T-bill yields and interest rates for lek-denominated deposits. However, the moves have failed to increase lending or investments as the Albanian economy suffered spillover impacts from top trade partners Italy and Greece and problems at home with public debt at around 70 percent of the GDP including government arrears of around 5 percent and non-performing loans at 25 percent.
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.
