TIRANA, Sept. 27 – More than a third of enterprises in Albania are exposed to exchange rate risks, mainly because of having borrowed in foreign currency and using the national currency in their everyday operations, according to a survey conducted by the country’s central bank.
The survey with about 1,200 enterprises nationwide has shown 35 percent of companies in Albania which have a loan to pay off are at risk of exchange rate fluctuations.
“Some 23.6 percent of the exposed enterprises compared to 22.5 percent of unexposed enterprises have a loan instalment that exceeds 20 percent of their income,” says the survey.
Some 42.5 percent of enterprises engaged in operations only in the national currency are exposed to the depreciation of lek because of having borrowed only in foreign currency. Meanwhile, 38.4 percent of enterprises engaged only in foreign-currency operations which have borrowed in the national currency or a combination of currencies are exposed to the appreciation of the Albanian lek.
The survey showed that 60 percent of indebted enterprises use lek as their only currency, compared to 29 percent using foreign currency and 15 percent a combination of both.
Since late 2015, Europe’s single currency has lost about two percentage points against the Albanian lek, negatively affecting the country’s exports, two-thirds of which are destined for Eurozone countries.
The Euro slightly recovered to 137.26 lek this week following a six-year low of 135.87 lek in July 22 in gradual depreciation since late 2015 apparently fueled by the tourist season effects and lower demand for dominating euro loans as lending continues to remain at negative growth rates, according to the central bank.
The depreciation of the Euro against the Albanian lek is good news for borrowers in Euro who have their income in lek and government’s external debt payments, but bad news for Albanian exporters who are also facing a sharp cut in commodity prices, keeping exports at negative growth rates.
The national currency, lek, has lost around 15 percent during the past seven years against the Euro. In November 2008, when the global crisis broke out, the Euro stood at an average of 123.29 lek. Since then, it has been on a constant appreciation trend against lek, climbing to a historic record high of 141.97 lek in June 2011 and remaining at an average of 140 lek until late 2015.
The Vienna Institute for International Economic Studies has urged Albania, which applies a floating exchange rate system, to consider adopting an intermediate exchange rate system allowing broader fluctuation bands to offer more certainty for exporters and serve as shield against destabilizing capital flows.
Credit to businesses representing about 69 percent of total credit dropped by an annual 1 percent in the first half of this year but is estimated to have grown by 2.5 percent in real terms considering the effects of the write-off of bad debt from banks’ balance sheets.
Non-performing loans among the business community in the first half of 2016 climbed to 24.4 percent, almost the same compared to the same period last year.
Nearly half of the surveyed enterprises said they had at least one loan to pay off at the end of 2016 with business representatives describing the borrowing process from banks between normal and tough.
The Albanian economy is highly euroised with lending in the foreign currency accounting for 60 percent of total credit compared to 68 percent in 2011 and the euro being a common currency in the real estate market. The high level of euroisation has also inhibited the effectiveness of the easier monetary policy with lending still struggling to return to positive growth rates despite the key interest rate standing at a historic low of 1.25 percent.
Lending to the economy showed signs of recovery last July when it almost overcame its downward trend for the past 12 months as credit registered a negligible annual contraction of 0.03 percent, according to the country’s central bank.
Non-performing loans embarked on upward trend in the first half of this year when they rose for six consecutive months, affecting credit growth and banks’ profits, according to the central bank.
On a falling trend since mid-2014 when they reached a record high of 25 percent, NPLs dropped to 18.22 percent at the end of 2015 but rose again to about 20 percent at the end of the first half of this year as one of the country’s key enterprises announced bankruptcy, affecting credit which struggled to recover to positive growth rates.
