TIRANA, April 5 – Albanians withdrew about 5 billion lek (€35.7 mln) in savings in the first couple of months of this year as deposit interest rates hit new historic lows. Data shows average interest rates for lek-denominated deposits dropped to 1.17 percent in February 2016, down from 1.36 percent last December and 1.56 percent in Feb. 2015. The falling rates in lek-denominated deposits, accounting for half of total savings, have been affected by the key interest rate standing at an all-time low of 1.75 percent since Nov. 2015. Meanwhile, interest rates on Euro-denominated deposits dropped to 0.27 percent last February, down 0.6 percent compared to a year ago. The rates are expected to further decline following last March’s decision by the European Central Bank to cut the eurozone’s main interest rate to zero.
Deposits in the Albanian banking system slowed down to 0.7 percent in February 2016 after growing by only 1 percent in 2015, the lowest growth rate since the outbreak of the global financial crisis in 2008.
The minority 4 percent of Albanian savers continue dominating more than half of total bank deposits, the Deposit Insurance Agency says in an annual report. By contrast, the remaining 96 percent of savers hold only 42 percent of total deposits. These fully insured deposits of up to 2.5 million lek (€17,900) are held by about 2 million depositors with the average deposit at only 181,524 lek (€1,291).
With the economy struggling with poor growth rates of slightly above 2 percent and interest rates at a historic low, investment opportunities for Albanian savers have considerably reduced, turning them to risky investments such as informal lending and online stock trading.
The country’s highest financial authorities have warned Albanians to be careful with online trading in international stock exchanges, describing such investments as highly risky, especially if offered by unlicensed operators and used by investors lacking appropriate knowledge.
While traditional bank deposits struggle to remain at positive growth rates due to a sharp cut in interest rates, the emerging investment funds continue registering moderate growth rates fueled by more favorable interest rates although at slower pace compared the boom following their establishment in 2012.
Meanwhile, lending to the economy continued struggling last February when it contracted by an annual 2.2 percent.
The write-off of non-performing loans that have spent three years in the “loss” category artificially reducing lending, poor demand by both businesses and households and tight lending standards as NPLs still remain at 18 percent have all contributed to the situation.
