TIRANA, May 8 – The stock of non-performing loans in Albania’s banking system registered a sharp cut in 2017 as banks continued to write off bad debt from their balance sheets and restructure loans with big borrowers.
Reports by the country’s central bank show the stock of non-performing loans dropped by 30 billion lek (€234 mln) to 80 billion lek (€625 mln) at the end of 2017 when NPLs hit a 7-year low of 13.23 percent, in a process triggered by the compulsory write-off of bad loans that have spent more than three years in the banks’ balance sheets and new deals restructuring loans for big borrowers in trouble.
NPLs have been on a downward trend since mid-2014, when they hit a record high of about 25 percent of total credit, but lending has been struggling to recover to positive growth rates amid tight lending standards and poor demand by both businesses and households.
The sharp decline in the value of NPLs was a result of 16.7 billion lek (€130 mln) write-off in bad debt, as well as loan restructurings with some 35 big borrowers, estimated to hold about two-thirds of bad debt.
Starting January 2015 when new rules on the compulsory removal of bad debts became effective, commercial banks have written off about 48 billion lek (€373 million) in NPLs in the ‘loss category’ from banks balance sheets, says the central bank in its annual report.
Since the outbreak of global financial crisis, when NPLs started to sharply rise following a pre-crisis credit boom, the value of collateral taken back under banks’ ownership following borrowers’ default on loans has grown from quite a modest figure to about 25 billion lek (€195 million) at the end of 2017.
The central bank says the process of managing non-performing loans has led to banks facing a relatively high number of cases in collateral execution and appropriations at the end of the legal process.
Perception on risk stemming from the ‘collateral execution’ process remains relatively high, mainly affected by perceptions of small and medium-sized banks.
Albania’s banking system is considered liquid, well-capitalized and profitable. Two recent internal market takeovers are expected to reduce the number of commercial banks operating in the country to 14 following more than a decade of 16 banks.
