House crediting averages a low 173 Euro per person
Bank house crediting in Albania accounts for 6.9% of Albanian GDP or around 173 Euros per person. The indicators, published by a study from Bank of Albania (BoA), are much lower than EU countries. Only Romania, an EU country scored lower due to specific factors in the real estate market carried from the past. Apartment prices in Tirana vary between 500-1500 Euros/m2, while the average income for an employed person is just 250 Euros. The gap is financed through informal economy, remittances from abroad and house crediting from banks. The most sought out areas are Tirana, covering 62% of house crediting market, and the Albanian coast, mainly Durres and Vlore, with 12% of the market where prices are much higher than the rest of the country. The coastal area is preferred for holiday apartments and investment purposes. Current interest rates for house crediting range from 7.7% to 12.6% and almost all crediting is done in foreign currencies, mainly in Euros.
Banks should liberalise house crediting, says BoA
Real estate market cannot develop, if banks do not liberalize their crediting policies. This is a result from a current BoA study on real estate market and house crediting. Given the average income for employed people, it makes it impossible for them to a purchase a home with their savings. Despite disproportions in average income and house prices, BoA predicts that demand in the housing market will increase, due to constant increase in incomes and housing prices. The problem in questions is how banks will cope with the increased demand in housing crediting. According to BoA, it’s the banks deposit structure that needs changing. If house loans have a long term maturity, bank deposits are characterized by short term maturity, usually less than a year. The maturity mismatch between deposits and loans limits the banks effectiveness to properly contribute in a gradual and well studied growth in the housing market. Therefore, it is necessary that banks need to apply long term deposits. Also, in order to support a stable demand, banks need to revise and improve crediting costs, financing terms, individuals’ ability to pay the loan based on their perception of future income flows, housing conditions, and population age and trends.
Prices will increase
While crediting is done in foreign currencies, mainly in Euros, salaries and wages are usually paid in Leks. Given the situation, a possible increase in interest rates, accompanied by a devaluation of the country’s currency might transfer the interest and exchange rates risk into an indirect crediting risk in the banking system, warns BoA. Such a phenomena, accompanied with a misbalance in microeconomic factors, will damage house crediting quality and/or limit the individuals’ ability to pay their loans.
Stricter rules on creditingō
The Albanian government has prepared a tough draft law deciding that any debtor who does not pay the loan will be sequestered his property set as collateral within a few days.
The world financial crisis has yet to have an impact on tiny Albania.
Nevertheless as a precautionary measure the irregular debtor will be stripped of his collateral within three days after a court verdict.
Bad loans are not a big problem in the country with some 16 commercial banks.
Following that the bank is obliged to sell (if it wants to) the collateral with the same price that was evaluated for the loan.
