TIRANA, Jan 28 – The non-performing loan ratio declined again in December and closed 2021 at 5.65 percent, the lowest level that ratio has seen since November 2008, according to Albania’s central bank.
In fact, last year was a good one in terms of bad loans, with the non-performing loan ratio seeing a decrease of approximately 2.5 percentage points.
Estimates indicate that at the end of 2021 the Albanian banking sector had approximately ALL 40 billion or EUR 330 million in bad loans.
In the first year of the pandemic, 2020, the non-performing loan ratio stayed at stable levels, also thanks to administrative measures to manage the situation, such as deferring payments or restructuring loans, without deteriorating the status of the borrower. While in 2021, there was a rapid economic recovery, which played an important role in maintaining the quality of the banks’ portfolio, according to a report by Monitor business magazine.
The trend of the non-performing loans ratio has seen a steady decline since 2016, when it reached a peak of nearly 25 percent. The trend was partly a result of a regulation of the Bank of Albania, which forced banks to write off loans classified as lost for more than three years. In early 2020, this term was further shortened to two years. During the January 2015 to June 2021 period, banks wrote off from their balance sheets about ALL 70 billion in bad loans.
In the last two years, the increase of the total loan portfolio, especially related to the positive performance of the new lending, has had a positive impact on the reduction of the non-performing loan ratio. At the end of November 2021, the total loan portfolio for the economy reached ALL 658.5 billion, with an annual increase of 10.5 percent.
In 11 months, banks disbursed about ALL 223 billion in new loans, 9.7 percent more compared to the same period of 2020 and approximately 4 percent more compared to the same period of 2019. The main growth of credit has come from households, which borrowed 38 percent more compared to the same period last year, with mortgages marking historic heights.
The increase in lending and the decrease in the non-performing loan ratio are also having a positive effect on the financial results of the banking sector. Bank of Albania data show that for the 11-month period 2021, the net profit reached the value of about ALL 19.15 billion, with an increase of 33.5 percent compared to the same period of the previous year. Reducing bad loans has a very significant impact on financial results, positively affecting the profitability of banks, Monitor magazine reports.
