TIRANA, Nov. 3 – Lending suffered another blow last September when it contracted for the second month in a row, extending its year-on-year decline to 1.8 percent, according to data published by the country’s central bank.
The launch of a nationwide campaign against informality last September accompanied with massive field inspections and legal changes increasing fines on tax evasion by several times as well as pending amendments to the Criminal Code making tax evasion punishable by prison seem to have had a negative psychological effect on the business community whose demand for new loans has been sluggish despite interest rates registering a considerable decline.
The decline in lending compared to the peak December 2014 level is even sharper with credit having dropped by 2.4 percent in the first three quarters of this year.
The 16 overwhelmingly foreign-owned banks operating in Albania reported a total of 546.5 billion lek (€3.85 billion) in loans to both businesses and households at the end of Sept. 2014, which accounts for 56 percent of total deposits unveiling the ample liquidity of the country’s banking system.
In its latest survey, the country’s central bank said the high level of non-performing loans, the macroeconomic situation and the households’ financial situation continue keeping lending standards tight.
Poor demand by both businesses and households also remains a key concern for lending which last August turned to negative growth rates.
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.
Average interest rates on lek-denominated loans, which account for around 40 percent of total credit, rose to 8.18 percent last September, down from a record low of 7.73 percent last August, 8.46 percent in Sept. 2014, 10.14 percent in Sept. 2013 and 11.1 percent in Sept. 2012.
The loan rates, although considerably lower to the pre-crisis period, are still considered high and unaffordable by the business community because of being six times higher compared to the deposit rates which have dropped below the average inflation rate for the past year.
While deposits grew by only 1.4 percent year-on-year in Sept. 2015, average interest rates on 12-month deposits slightly rose to 1.27 percent, down from a historic low of 1.04 percent last August compared to an inflation rate of 2.2 percent last September.
Interest rates on Euro-denominated loans which account for more than half of total credit, dropped to 5.91 percent in Sept. 2015, down from 6.6 percent last August and 6.46 percent in Sept. 2014 when the European Central Bank cut its key rate to a historic low of 0.05 percent.
The high level of non-performing loans, currently at 20 percent, down from a record high 25 percent a couple, is considered the main obstacle to a recovery in lending.
A new package of measures drafted by the Albanian government and the central bank is targeting to tackle non-performing loans for 35 companies which are estimated to hold around half of NPLs in Albania.
Non-performing loans have more than trebled in the past six crisis years, becoming a drag on economic growth and lending which has been struggling with sluggish growth rates in the past couple of years.
