TIRANA, Feb. 1 – Albania’s competition watchdog says it has launched an in-depth probe into the country’s four largest commercial banks to check whether high interest rates amid sluggish credit and high profit rates could be an abuse of their dominant position.
Preliminary findings by the competition authority shows all four leading banks apply extremely low deposit rates and high interest rates and commission fees in behavior that could be part of a banned deal and distort market competition in a banking system that for about a decade until mid-2018 had 16 commercial banks that are about to be reduced to 13 following three mergers and acquisitions.
The competition watchdog says it has also noted high commission fees and penalty rates in case of customers switching banks and high fees for transfers in foreign currency.
Deposit interest rates applied by the country’s banking system have hit historic lows of close to zero as the key rate stands at an all-time low of 1 percent following a decade of easier monetary policy pursued by Albania’s central bank in a bid to stimulate credit growth and consumption. Albania’s inflation rate has been at 2 percent in the past couple of years, and is yet below the central bank’s 3 percent target estimated to have a positive effect on Albania’s economic growth.
Meanwhile, average loan rates in the national currency stood at 6.6 percent in late 2018, according to Albania’s central bank.
“There have been very low interest rates on deposits (as low as 0.55 percent on an annual basis and below the inflation rate), a relatively high difference (spread) between loan and deposit interest rates, a trend of rising interest rates on government securities, especially long-term debt financing instruments (bonds) under conditions of an easy monetary policy and at a time when the key rate has been on a downward trend,” the competition watchdog said in late 2015 when it initiated a preliminary probe into the country’s banking system.
Top four banks
The in-depth probe will cover the 2016-2018 behavior of Turkish-owned BKT, the country’s largest bank in terms of assets, part of Turkey’s Calik Holding that also owns Albtelecom, the country’s fixed-line and internet service provider running the country’s third largest mobile operator.
The audit also includes the Albania unit of Austria’s Raiffesen Bank, the country’s largest commercial bank for about a decade until 2013 when it lost its leading position after gradually lowering exposure to Albania’s domestic public debt following the 2008-09 global financial crisis, but later diversified its portfolio in the country’s emerging investment and pension funds.
Majority Albanian-owned Credins Bank, the country’s third largest bank, and Italy’s Intesa Sanpaolo Bank Albania, which last year acquired the small loss-making Veneto Banka Albania through a merger without any significant impact on its assets, are also on the probe list.
All four banks represented 67.8 percent of assets in the Albanian banking system at the end of the third quarter of 2018, with top two BKT and Raiffeisen holding 28.4 and 15.1 percent in market shares respectively, in only slightly lower market share of 0.8 percent compared to the end of 2015, according to the Albanian Association of Banks.
Austrian-owned Raiffesein is the sole commercial bank to have seen its market share drop in the past three years, with its 6 percentage point loss gained by main three rivals.
Ample liquidity amid high rates, poor demand
Despite a series of mergers and acquisitions and new market entrants in the past couple of years, Albania’s central bank describes the country’s banking system as well-capitalized, liquid and profitable. However, due to poor demand and tight lending standards as a result of declining but still high non-performing loans, credit has been growing at moderate rates of around 4 percent when adjusted for effects such as euro’s free fall and the write-off of non-performing loans statistically keeping lending at negative growth rates.
As a result commercial banks have been investing more in government securities, Bank of Albania deposits and interbank placement both in Albania and abroad.
Surveys conducted by Albania’s central bank blame poor demand for new loans and tight lending standards amid a declining but still high level of non-performing loans of around 13 percent for the poor credit growth in key barriers that prevent making use of ample deposit-funded liquidity.
Commercial banks operating in Albania posted record profits of about 22 billion lek (€175 mln) in 2017, more than double compared to 2016 and breaking a previous record of about 15.7 billion lek (€125 mln) in 2015.
However, several small banks, some of which have changed hands in the past few years and others reportedly on sale, have been accumulating losses in the past few years amid sluggish credit growth.
Three EU-owned banks, including two Greek units and a French-owned one, have left Albania in the past couple of years, with bank ownership switching to domestic and non-EU conglomerates that international financial institutions estimate has limited credit supply.
“As bank ownership is shifting to domestic and non-EU conglomerates, bank supervision has a critical role in containing risks stemming from related-party lending, cross-border lending, and large exposures,” the IMF warns in its latest Albania report.
Central bank governor Gent Sejko has called on commercial banks operating in the country to ease lending standards so that the current sluggish credit growth receives a boost, in a move that would also help the country’s economy grow at faster and more sustainable rates.
“The banks’ role is essential in this direction. The banking sector preserves the Albanians’ savings, but it has to put those savings at the disposal of the country’s growth and development. There is no growth without credit and savings lose their value without growth,” governor Sejko has recently appealed.
The Albanian economy has been growing by around 2 to 3 percent annually in the aftermath of the 2008-09 global financial crisis, almost half of a pre-crisis decade of 6 percent annually that is estimated to have tangible effects on Albanian household and bridge huge development and income gaps with EU member countries.
The country’s economy is estimated to have recovered to a decade-high of 4.2 percent in 2018, but growth prospects for this year are mixed with the Albanian government expecting growth to pick up to 4.3 percent, and international financial institutions forecasting growth will slow down between 3.5 to 3.7 percent amid lower FDI as two major energy-related projects are in their final stage and possible spillover effects from main trading partners in the Eurozone, a slowdown in Turkey and global trade tensions.
