TIRANA, Jan. 23 – Non-performing loans in Albania’s banking system almost stood at a standstill in 2018 following a sharp decline since mid-2014 when they hit a record high of around 25 percent fuelled by credit boom in the pre-crisis period and economic slowdown after a decade of GDP growth of 6 percent annually until the 2008-09 global financial crisis.
Bank of Albania data shows non-performing loans (NPLs) dropped to around 12.7 percent in November 2018, down only 0.65 percent compared to the end of 2017, to register one of the lowest declines for the past five years.
The main barrier to easier lending standards and credit recovery, NPLs dropped by 5 percent to 18.3 percent in 2017, following a standstill in 2016 and a total of 6 percent during 2014-15.
The NPL decline is mainly a result of mandatory write-off of bad debt that has spent three years in the ‘loss’ category since 2015 and loan restructuring with big borrowers, but yet NPLs in Albania remain the highest in the Western Balkan region, posing a key barrier to easier lending standards and credit recovery.
Commercial banks in the country wrote off 3.1 billion lek (€24.8 mln) in bad debt during the first half of 2018, taking the stock of bad debt that has been removed from banks’ balance sheets to 51 billion lek (€408 mln) since 2015, according to a Bank of Albania financial stability report.
The significant level of NPL write-off and a strong appreciation of the national currency against Europe’s single currency, accounting for around half of total credit in Albania, has also affected credit growth which statistically remains at negative growth, but at moderate growth rates of around 4 percent when adjusted for the NPL write-off and the Euro’s free fall effects.
Yet, commercial banks in the country remain highly liquid and have posted record high profits in the past couple of years, although several small banks continue registering losses leading to a number of mergers and acquisitions and new entrants that have cut the number of commercial banks operating in the country to 13, from a decade of 16 until last year.
Few weeks ago, Albania’s central bank governor Gent Sejko 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.
Credit to the private sector has been sluggish in the past five years amid a high level of non-performing loans and poor demand by both businesses and households despite loan rates on a downward trend due to key rates by both Albania’s central bank and the European Central Bank at record lows.
The Albanian 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.
