TIRANA, Jan. 19 – Banks tightened lending standards for businesses in the final quarter of 2016 and do not expect to considerably ease them in the first three months of this year, a survey by the country’s central bank has found.
The tighter standards comes as non-performing loans have embarked on an upward trend in the past few months reaching 20.44 percent last November, down from a record high of 25 percent in mid-2014, being a key barrier to credit which has been struggling to return to positive growth rates in the past year, also due to poor demand by businesses despite the easier monetary policy significantly cutting loan rates.
Banks’ profits dropped to about 6.5 billion lek (€46.8 mln) in the first three quarters of 2016 as non-performing loans rose to 21.3 percent.
Specific problems in the sector businesses operate, the high level of non-performing loans and the banks’ perception on macroeconomic situation made lending standards tighter despite ample competition, liquidity and capital adequacy in the Albanian banking system.
Banks increased demand for collateral in the final quarter of 2016, something which made the loan application and approval process more difficult at a time when demand for new business loans remained almost unchanged, said the central bank.
“Banks expect lending standards to further tighten for big businesses in the first quarter of 2017 and slightly ease for small and medium-sized businesses. Demand for new loans is expected to pick up by both businesses and households,” the Bank of Albania says in its survey.
Credit officially returned to positive growth rates in the third quarter of the year, overcoming a one-year period of contraction also affected by the write-off of non-performing loans from banks’ balance sheets artificially keeping credit at statistical negative growth rates.
The findings about lending standards and demand for new loans, contradict another central bank survey showing the business and consumer confidence continued recovering in the final quarter of 2016 when it climbed to 9.4 percentage points above its long-term historical average.
Confidence in the key services and construction sectors recovered in the final quarter of the year but slightly fell in the industry sector affected by the slump in commodity prices reducing the country’s oil and mining exports. Confidence in the trade sector also slightly deteriorated but further improved among consumers, standing 3 percentage points above its historical average.
The Albanian economy is expected to face a tough start in 2017 after the country experienced the coldest winters in three decades, with heavy snowfall and icy weather paralyzing business in early January and severely damaging greenhouse crops.
However, a pickup in commodity prices is expected to reinvigorate oil and mineral exports which have been suffering since mid-2014 when international prices more than halved.
