Apart from lowering the rate of non-performing loans currently standing at a record 24 percent, the write-off will also unfreeze considerable funds in provision coverage for bad debt
TIRANA, June 5 – Finance Minister Ridvan Bode has issued on ordinance expected to provide a final solution to conflicts with tax authorities on banks’ writing off bad debt. The ordinance on profit tax on banking or non-banking institutions foresees that that bad debt can be removed from balance sheets 365 days after a request on the start of compulsory execution procedures are filed with court.
The conflict had arisen from different interpretations of the profit tax law which determined that one of the conditions for the bad debt to be recognized as deductible expenses “is having taken all possible legal action for its collection.” The tax authorities did not recognize bad loans as tax-deductible expense when banks wanted to write them off, imposing taxes on them.
Apart from lowering the rate of non-performing loans currently standing at a record 24 percent, the write-off will also unfreeze considerable funds in provision coverage for bad debt.
Bank of Albania representatives had recently stressed the need for banks to remove loans which they consider as lost from their balance sheets.
According to central bank governor Ardian Fullani, the new measure will free banks, representing more realistic balance sheets and giving a new impetus to lending. The central bank estimates that writing off loss loans whose holders have failed to pay for more than 1 one year clears the banks’ balance sheet from non-performing assets which deform the structure and quality of the balance sheet.
“This is an action which clarifies financial relations between businesses and households with banks on the transparency of the financial situation, urging different restructurings in the market,” said the central bank. Loss loans climbed to 7.7 percent at the end of the 2012, up from 5.7 percent at the end of 2011.
Banks’ profits in the first quarter of 2013 dropped to 1.3 billion lek (Euro 9.3 million) down from around 2 billion lek (Euro 13.6 million) in the first quarter of 2012 as bad loans hit a record 24 percent.
In 2012, the highest percentage in the non-performing loan portfolio belonged to sub-standard loans at 9.83 percent whose holders have failed to pay instalments from 61 to 90 days. Second come loss loans at 7.7 percent followed by doubtful loans at 5.23 percent. Under the BoA regulation, loans are considered doubtful when borrowers have not been able to pay for 180 days and lost when the payment has been delayed by more than one year.
Non-performing loans, which account for a total of around 1 billion dollars, representing around 7.6 percent of the GDP, are becoming a drag on economic growth. Experts say they are considered the second major threat to the Albanian economy after the public debt, now beyond the former legal ceiling of 60 percent of the GDP.
