Central bank survey shows businesses, households face tough times

Tirana Times
By Tirana Times October 30, 2015 11:10

Story Highlights

  • “The enterprises' general sales and financial result deteriorated in the first half of 2015 compared to the end of 2014. Even the expansion of the economic activity displayed signals of a slowdown," says the central bank in its latest financial stability report

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TIRANA, Oct. 26 - While the Albanian economy recovered to moderate growth rate of 2.65 percent in the first half of this year, the business community continues facing tough times with lower sales affecting their profits, the country's central bank says in a report.

“The enterprises' general sales and financial result deteriorated in the first half of 2015 compared to the end of 2014. Even the expansion of the economic activity displayed signals of a slowdown," says the central bank in its latest financial stability report.

A survey with more than 700 enterprises nationwide shows almost half of them (48 percent) do not plan to take out new loans for the second half of the year. Only 3 percent of the surveyed enterprises said they had made a final decision about borrowing from banks while the remaining part was still mulling it over.

Half of the enterprises (some 51 percent) said they had a loan to pay off in the first half of 2015, down 4 percent compared to the second half of the year.

Differently from households where informal borrowing accounts for the majority of total credit, the situation among businesses is quite different with 92 percent of enterprises borrowing from banks.

The survey shows demand for new loans has dropped among businesses especially in the construction and services sectors. Loans in the foreign currency, especially in Euro, dominates more than half of credit in Albania, unveiling the country's high euroization rate, which inhibits the effectiveness of the central bank's monetary policy to give a boost to lending, struggling to recover in the past couple of years after the boom in the pre-crisis years.

 Households

The situation among households continues remaining critical with almost a third (29 percent) declaring a deterioration in their ability to repay loans, an indicator improving by 2.1 percentage points compared to the end of 2014, but deteriorating by 16.5 percent compared to the first half of 2014.

Lower income and an increase in the cost of living are the main causes for the deterioration in the households’ ability to repay, says the central bank’s survey.

The nationwide survey with 1,200 households shows the majority 60 percent of Albanian households continue to rely on informal borrowing from relatives and friends as well as local stores unveiling the tight lending standards and high costs of borrowing from banks. However, informal borrowing is estimated to account for only 17 percent of total lending to households which is dominated by needs to finance consumption and purchase and repair of property.

Some 27 percent of the surveyed households said they had at least one debt to pay off, compared to 30 percent at the end of 2014. More than 80 percent of the respondents said they expect no improvement in their ability to repay in the second half of this year.

 Consumption concerns

The central bank has earlier noted the launch of a nationwide campaign to curb electricity theft and collect accumulated unpaid bills has had a negative impact on household consumption. The Albanian government says it collected an extra $150 million in electricity bills in the first three quarters of this year compared to the same period last year and $200 million compared to 2013.

Household final consumption expenditure measuring consumer spending was down by 3.16 percent year-on-year in the second quarter of 2014, declining for the second quarter in a row, according to state statistical institute, INSTAT.

The latest business and household survey reflects official data showing that 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.

The launch of a nationwide campaign against informality last September accompanied by legal changes increasing fines on tax evasion by several times and pending amendment to the Criminal Code making evasion punishable by prison has sparked mixed reactions by the business community which has hailed the campaign but criticized its aggressiveness and tough penalties as not helping improve the business climate.

Tirana Times
By Tirana Times October 30, 2015 11:10