TIRANA, Jan. 9 – Credit to businesses and households failed to return to positive growth rates in the first 11 months of 2017 amid poor confidence and tight lending standards fuelled by a declining but still high level of non-performing loans, according to the central bank.
The negative growth rate was also affected by an ongoing process of bad debt write-off from banks’ balance sheets which has reduced the level of NPLs to about 14.3 percent, down from a record high of 25 percent in mid-2014 following legal changes making the removal of loans that have spent three years in the ‘loss’ category compulsory.
A stronger national currency which in 2017 traded at an 8-year high of about 133 lek against Europe’s single currency has also had a negative impact on credit, statistically slightly below zero, but at a moderate 3 percent rate when adjusted for the NPL write-off and the exchange rate effect.
Albania’s central bank reports credit to the economy in the national currency at a time when Euro-denominated loans account for about half of total loans, making it vulnerable to exchange rate fluctuations.
The poor credit growth has reportedly led to an increase in informal borrowing and some banks have increased lending abroad at a time when the deposit-funded local banking system remains highly liquid and profitable.
Although loan interest rates have sharply reduced as the key rate has been held at a historic low of 1.25 percent since May 2016, the average rates of 6.8 percent on lek-denominated loans and at 4.2 percent on Euro loans in late 2017 are perceived too high considering deposit rates of slightly above zero.
The Albanian economy is expected to hit a nine-year high of about 4 percent in 2017, but businesses and households are not very enthusiastic about the growth rate triggered by some major-energy related investments and the tourism sector.
Albania’s Economic Sentiment Indicator, measuring both business and consumer confidence, was down by 3.9 percentage points in the final quarter of 2017, but remained above its historical average. The situation was a result of a deterioration in confidence by the key construction, trade and industry sectors as well as consumers. Early 2018 prospects remain pessimistic for both businesses and households, shows a Bank of Albania survey.
