The changes strengthen the transmission mechanism of the monetary policy and create good conditions for credit boost, says central bank governor Ardian Fullani
TIRANA, March 27 – Albania’s central bank approved on Wednesday some changes to the regulations on capital adequacy, the administration of credit risk and liquidity in an effort to give a boost to lending which has slowed down to the lowest historic levels.
“The changes strengthen the transmission mechanism of the monetary policy and create good conditions for credit boost. In this respect, these changes are harmonized with the facilitating aspect of the monetary policy and stimulate the economic activity in the country. More concretely, the adopted changes increase the allowed level of liquidity in the banking system and create bigger space for the use of the financial lever by the banking system. Both these initiatives directly support a quicker credit growth,” said Bank of Albania governor Ardian Fullani.
Seyhan Pencabligil, the chairman of the Albanian Association of Banks and CEO of BKT, the country’s second biggest commercial bank has welcomed the measures introduced by the Bank of Albania and called on Parliament to approve the changes to the Civil Code accelerating the execution of the collateral, a key barrier which has led to non-performing loans climbing to a record 22 percent.
“The changes require a qualified majority of votes in Parliament and I call on political parties to treat this issue as an economic need rather than a political debate,” Pencabligil said earlier.
Speaking in a forum with bank and business representatives, governor Ardian Fullani said the package of reforms focuses on three key pillars, the legal pillar including changes to Civil Code to accelerate the execution of collateral, the monetary policy pillar aimed at increasing lending and consumption and the macro-prudence pillar unfreezing financial resources in banks and channeling them toward lending.
The prudential pillar involves the reduction of demands for banks’ liquid assets and the increase of risk coefficients and the structure of investments to increase lending.
Albania’s business community has welcome the package of reforms aimed at boosting lending, saying that it is now up to the banks to take the initiative in fulfilling the financing needs of the private sector.
New proposed amendments to the Civil Code, requiring a qualified majority of 3/5 of votes are expected to accelerate the execution of collateral which has become a barrier for banks and led to non-performing loans climbing to a record 22 percent. Low inflation pressures have allowed the Bank of Albania to cut the key interest rate by 1.5 percentage points to a historic low of 3.75 percent since Sept. 2011 in an effort to stimulate the economy but the moves have been poorly reflected in lower loan interest rates and an increase in investments.
Les Nemethy, a well known financial expert, says that businesses must be prepared to have reliable projects because banks no longer finance businesses as they did five or ten years ago.
Earlier this month, the Albanian government approved some changes to the Civil Code which increase the efficiency of the justice system and ease procedures for citizens. The changes, which need a qualified majority of 84 votes and as a result consensus by the opposition, target reforming the treatment of inheritance cases in courts by shifting the process to notaries public, and facilitate execution of collateral to help banks stop the rising bad loans. The process of collateral execution is reformed by lowering the price floor from 75 percent of the collateral to 50 percent, based on EU examples.
The reform also foresees the acceleration of execution orders which will automatically be issued after the court decision without the need for a written request.
Lending has almost frozen after growing by an average of 10 percent in the past three years compared to the pre-crisis levels of 30 to 50 percent Lending sharply decelerated to 2.36 percent at the end of 2012, down from 12 percent in 2012. In the global crisis year of 2009 credit growth slowed down to 11 percent and decelerated to 9.6 percent in 2010, according to Bank of Albania data.
Key rate unchanged
With lending sharply slowing down to only 2 percent in 2012, the central bank says it will continue following a stimulating monetary policy as long as inflation pressures remain low.
In late January 2013, Albania’s central bank made a new cut to the key interest rate taking it to a historic low of 3.75 percent in an effort to give a new impetus to the country’s ailing economy suffering crisis impacts from the Eurozone partners, and problems at home with sluggish consumption, high levels of public debt, and a sharp drop in lending as bad loans have reached a record 22 percent. Governor Fullani said the move was aimed at increasing the sluggish consumption and investments by easing lending in the national currency.
Speaking of Albania’s growth in the first quarter of 2012, governor Fullani said that indirect indicators unveil the continuation of sluggish demand and growth below potential. “The economic activity was supported more by foreign demand and higher fiscal stimulus while consumption and private investments had a low contribution,” said Fullani.
Low inflation pressures have allowed the Bank of Albania to cut the key interest rate by 1.5 percentage points to a historic low of 3.75 percent since Sept. 2011 in an effort to stimulate the economy but the moves have been poorly reflected in lower loan interest rates and an increase in investments.
