Banks abuse with interest rates

TIRANA, June 8ؔhe difference between loan and deposit interest rates in the banking system has increased considerably in 2009, with loan interest rates being significantly higher than deposit rates. According to a study by the Bank of Albania, intermediary costs in Lek have increased to 6.61% in 2009 from 5.81% at the end of last year. Intermediary costs in euro increased from 4.76% in 2008 to 5.14% this year. Basically, BoA noticed, deposit rates have decreased while credit rates have further increased independently of the currency of choice.
High intermediary costs between interest rates were attributed to bank investments in high risk activities and a change in deposits structure in favor of those in foreign currencies with lower rates.
Interest rates in euro crediting were not affected by lower Euribor rates, which lowered immediately after European Central Bank cut its base interest rate. If anything, they have only increased. Meanwhile, interest rates for deposits in euros have dropped considerably since the ECB lowered base rates twice, 0.75% in December 2008 and 0.5% this January. The cut of 1.25% was reflected by the same margin in euro deposits in Albania. Average interest rates were registered at 2.56% in the first quarter of 2009, 0.58 percentage points less from 2.92% in December 2008. Meanwhile, depending on maturity, 12-month deposits recorded in February averaged interest rates of 4.47%, 0.24 percentage points less than a month before.
As well as abusing interest rates, the banking system is accused of lacking transparency. Despite many attempts from BoA to switch toward crediting in Lek, banks have insisted on supplying loans in foreign currencies in a time when Albanians receive their incomes in Lek, therefore leaving the borrower susceptible to risks from exchange rate fluctuations.
Conclusions reached by BoA reflected a prior study made by the IMF, where both institutions agree banks are not playing fair.
It goes to show the lack of efficiency characterizing our banking system and how it is becoming an impediment to economic development.