The Albanian government will pay Deutsche Bank an interest rate of 1.3 percent above the benchmark rate currently at 0.5 percent
TIRANA, April 8 – Deutsche Bank, Germany’s biggest bank, will lend the Albanian government Euro 250 million in a 10-year loan to support public investments and cover its budget deficit, the Finance Ministry has announced after holding an international tender.
The ministry says it will pay Deutsche Bank an interest rate of 1.3 percent above the benchmark rate currently at 0.5 percent.
Under the deal, the Albanian government will also pay a 1.25 percent commitment fee for the 10-year loan with an average life of 8.6 years.
The loan is guaranteed by the IBRD, the World Bank’s lending arm for middle income and credit-worthy poor countries, which is guarantor for Euro 200 million, or 80 percent of the total loan.
Meanwhile, the Albanian government has also launched a call for a consultant as it prepares to issue its second Eurobond.
The timing seems favourable as the European Central Bank continues keeping its key rate at a historic low of 0.05 percent and has undertaken quantitative easing of Euro 1.1 trillion into the ailing eurozone economy, considerably cutting bond yields in international markets.
Finance Minister Shkelqim Cani has earlier said government is planning to borrow Euro 300 million to 500 million from international markets so that lending to businesses and households from local banks is not affected. After overcoming a 12-month moderate decline only last July, lending continues remaining at sluggish growth rates of 2 to 3 percent with non-performing loans at around a quarter as the key barrier for easier lending standards.
In its new rating, Standard & Poor’s, one of the world’s leading rating agencies revised Albania’s outlook on long-term sovereign credit rating to positive from stable affirming its ‘B/B’ ratings, which is expected to have a positive impact on Albania’s external borrowing and the Eurobond interest rates.
In late 2010, Albania issued its first-ever Eurobond of 300 million euros with a maturity of up to five years and an interest rate of 7.5 percent. The money was mainly used to pay off a costly syndicated loan to fund the costly Durres-Kukes highway linking Albania to Kosovo.
The debut Eurobond issue in November 2010 came as international financial markets stabilized and after some changes were approved in Parliament to the government deal with Deutsche Bank AG and JPMorgan Chase & Co. which managed the Eurobond sale. The deal had been put off several times after the Greek debt crisis rattled markets.
Government’s new borrowing comes at a time when the Albanian economy is expected to accelerate to 3 percent in 2015, up from an expected 2 percent in 2014 but public finances continue struggling as public debt stands at a record high of around 70 percent of the GDP.
