The banks’ net profit more than halved to 668 million lek in the first quarter of 2011, down from 1.5 billion lek at the end of the first quarter of 2010.
By ervin lisaku
TIRANA, May 9 – Bad loans, which the central bank and financial experts describe as the key risk to Albania’s banking sector, continued rising even in the first quarter of this year while banks’ profits more than halved. Latest data published by the Bank of Albania show bad or non-performing loans climbed to 14.42 percent of the total portfolio in the first quarter of 2011, up from 13.61 percent in the final quarter of 2010 and 11.46 percent in the first quarter of 2010.
Official data show lost loans during the first quarter of 2011 increased to 4.50 percent, up from 3.98 percent in the final quarter of 2010 and 3.16 percent in the first quarter of 2010. The percentage of doubtful loans also rose to 4.05 percent, up from 3.59 percent in the previous quarter and 2.91 percent in the first quarter of 2010.
Meanwhile, the percentage of substandard loans at 5.87 percent registered a slight decrease of 0.17 percent compared to the final quarter of 2010 but were up 0.48 percent year-on-year.
Provisions for bad loans also increased to 9.11 percent at the end of the first quarter of this year, up from 8.17 percent in the final quarter of 2010 and 6.88 percent at the end of 2010.
Latest data show bad loans at the end of December 2010 climbed to 68.5 billion lek, registering an increase of 21.4 billion lek compared to the end of 2009 when they stood at 10.5 percent of the total. However, the central bank reports a slowdown in the final quarter of 2010 when bad loans increased by only 3.4 billion lek, the lowest quarterly level during the past two years.
Bad loans in December 2010 dropped to 14 percent from 14.4 percent in November 2010, the lowest monthly level for the past two years. “This performance could be a signal of the stabilization in the amount of bad loans, but which nevertheless needs to be repeated in several periods of times to reconfirm a stable performance,” says the central bank.
Reacting to rising credit quality risks for both businesses and individuals in the national currency and foreign currency, the banking sector took measures increasing provisions for bad loans by 36.1 billion lek or 20 percent compared to June 2010.
The collateral coverage in the bad loan portfolio is estimated at 79.3 percent compared to 78 percent in the first half of 2010. The credit quality deteriorated for the construction, the hotel and restaurant and the transport sectors.
Governor Ardian Fullani recently called on the 16 commercial banks operating in Albania to cooperate with their customers in case of temporary difficulty in paying off installments but be strict and act in time executing collateral in case of identifying bad loans.
Banking sector experts say there are a number of causes that have led to strong growth of bad loans. They include shrinking family incomes, businesses in crisis and depreciation of the local currency, mainly against the euro. These factors have made it harder for people to pay back the loans they took in better times.
Non-performing loans in Albania registered a rapid year-on-year increase at the end of 2008, when they doubled to 6.6 percent of the total portfolio, reflecting the first impacts of the global financial crisis. At the end of 2009, bad loans further climbed to 10.5 percent.
Meanwhile, the banks’ net profit more than halved to 668 million lek (6.7 million dollars) in the first quarter of 2011, down from 1.5 billion lek (15 million dollars) at the end of the first quarter of 2010.
Central bank data show the net revenues from interest rates in the first quarter of 2011 slightly rose to 9.2 billion lek, but expenditure on provisions grew to 3.9 billion lek, up from around 3.1 billion in the first quarter of 2010.
At the end of 2010, the net profit of the 16 commercial banks operating in Albania almost doubled to 6.7 billion lek (48 million euros), up from 3.5 billion lek at the end of 2009 when banks saw their profits halved because of the deposit withdrawal impact at the end of the 2008.
