TIRANA, Aug. 7 – Albania’s commercial banks posted record high profits in the first half of this year as non-performing loans hit a 6-year low fuelled by the ongoing write-off of bad debt.
Central bank data shows the 16-overwhelmingly foreign-owned banks operating in Albania posted record high profits of 11.5 billion lek (€85.2 mln) in the first half of this year as non-performing loans hit a 6-year low of 15.58 percent. The downward trend in NPLs, following a record high of 25 percent in mid-2014, has been a result of an ongoing write-off of non-performing loans that have spent three years in the ‘loss’ category from banks balance sheets and loan restructuring with some big borrowers.
The banks’ profits surged at a time when lending is officially struggling to return to positive growth rates amid tight lending standards and poor demand for new loans, giving rise to a hike in informal borrowing.
Real credit is estimated to have grown by a modest 2 to 3 percent in the first half of this year, taking into account the write-off effect of non-performing loans, statistically keeping lending at negative growth rates.
Lending in the first half of this year, has mainly grown in the national currency, which now accounts for about 42 percent of total credit, compared to only about a quarter just before the onset of the global financial crisis in 2008. The situation unveils the country’s declining but still high euroization rate, a barrier preventing the transmission of the central bank’s easier monetary policy which has led the country’s central bank to undertake de-euroisation measures for next year.
Governor Gent Sejko says the de-euroisation strategy will discourage savings and credit in Europe’s single currency currently accounting for half of total deposits and loans in a gradual process to make the Albanian economy more competitive and prevent foreign exchange risks associated with the fluctuations of the national currency.
The banks’ record high profits also come at a time when deposit rates are close to zero, spending on provisioning against loss sharply dropped and net income from other activities mainly related to commission fees and foreign exchange operations increased.
Average loan rates in the national currency slightly rose to 7.5 percent in June 2017 and were up to 4.5 percent for loans denominated in Europe’s single currency. Meanwhile, deposit rates stand close to zero, reflecting historic low key interest rates applied by central banks.
By comparison, banks’ profits during the first half of 2016 were at about 5 billion lek (€37.5 mln) and 8.3 billion lek (€61.5 mln) in the first half of 2015.
Back in the first half of 2009, soon after the outbreak of the global financial crisis, banks’ net profits hit a record low of 660 million (€4.9 million) negatively affected by panic deposit withdrawals amid concern over the health of Greek bank subsidiaries in the country.
Bank of Albania data shows the 16 overwhelmingly foreign owned banks operating in Albania reported net profits of 9.27 billion lek (€68.5 million) in 2016, down 40 percent from a historic high of 15.7 billion lek (€116 mln) in 2015.
The Albanian banking system has been well-capitalized, liquid and profitable during the past eight years with the Albanian-owned assets increasing their share to 11.5 percent at the end of 2016.
