TIRANA, Oct. 19 – The high level of non-performing loans, the macroeconomic situation and the households’ financial situation continue keeping lending standards tight, according to a survey by the country’s central bank.
Non-performing loans, which currently stand at 20 percent, down 5 percent compared to their peak level in 2014, are considered the key barrier to tight lending standards and a decrease in interest rates. The country’s macroeconomic situation although slightly improving, remains critical with the GDP growth at sluggish growth rates of 1 to 2 percent in the past couple of years and public debt at around 70 percent of the GDP, a high level for Albania’s stage of development. Inflation rate has also been at about 2 percent in the past three years, 1 percent below the central bank’s target, hinting sluggish demand.
Households’ financial situation has also seen little progress during the past six crisis years. Albanian households considerably cut spending on food, drinks and restaurants soon after the onset of the global financial crisis in 2008, according to a survey carried out by the country’s state statistical institute, INSTAT.
Meanwhile, the central banks’ consecutive cuts to the key interest rate, the acceleration in procedures for the execution of collateral and the level of competition in the country’s 16 commercial banks are estimated to have had a positive impact on easing lending standards.
Poor demand by both businesses and households also remains a key concern for lending which last August turned to negative growth rates.
Businesses’ demand for new loans continued its downward trend while household demand slowed down in the third quarter of this year, says the central bank.
The 16 overwhelmingly foreign-owned banks expect lending standards to slightly ease for households on higher demand for new loans by SMEs but forecast a drop in demand by big enterprises employing more than 50 workers in the final quarter of the year.
Lending to the economy suffered a blow in August 2015 when it returned to negative growth rates after registering sluggish growth rates of 1 to 3 percent in the past year.
Bank of Albania data shows lending slightly contracted by 1.2 percent year-on-year in August 2015 hinting sluggish demand for new loans by both businesses and households as standards remain tight due to non-performing loans at around 20 percent.
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 and shrank by 1.25 percent in 2013 as bad loans hit a record of 24 percent.
The decline in interest rates for both lek and euro-denominated loans and the payment of accumulated unpaid bills to the private sector have proved inefficient for a recovery in lending.
Albania’s central bank has kept the key interest rate at a historic low of 2 percent since late January 2015 after 13 consecutive slashes by 0.25 percentage points since August 2011, when the key rate was at 5.25 percent.
Average interest rates on lek-denominated loans, which account for around 40 percent of total credit, dropped to a record low of 7.73 percent in August 2013, down from 8.43 percent a year ago, 9.48 percent in August 2013 and 11.11 percent in August 2012.
