BoA: Rising bad loans key risk for banks

TIRANA, April 26 – The rising bad loans portfolio remains the key risk for Albania’s banking sector, the central bank warns in the latest financial stability report. Latest data show the bad loans at the end of December 2010 climbed to 14 percent or 68.5 billion lek, registering an increase of 21.4 billion lek compared to the end of 2009 when they stood at 10.5 percent of the total.
However, the central bank reports a slowdown in the final quarter of 2010 when bad loans increased by only 3.4 billion lek, the lowest quarterly level during the past two years. Data show bad loans in December 2010 dropped to 14 percent from 14.4 percent in November 2010, the lowest monthly level for the past two years.
“This performance could be a signal of the stabilization in the amount of bad loans, but which nevertheless needs to be repeated in several periods of times to reconfirm a stable performance,” says the central bank.
Reacting to rising credit quality risks for both businesses and individuals in the national currency and foreign currency, the banking sector took measures increasing provisions for bad loans by 33 percent to 36.1 billion lek compared to the end of 2009.
The collateral coverage in the bad loan portfolio is estimated at 79.3 percent compared to 78 percent in the first half of 2010. The credit quality deteriorated for the construction, hotel and restaurant and the transport sectors.
Governor Ardian Fullani recently called on the 16 commercial banks operating in Albania to cooperate with their customers in case of temporary difficulty in paying off installments but be strict and act in time executing collateral in case of identifying bad loans.
“These actions are important under conditions when the Bank of Albania estimates that lending will continue facing a challenging environment and targeted improvements in credit quality will require more time to be put in place,” added Fullani.
Banking sector experts say there are a number of causes that have led to strong growth of bad loans. They include shrinking family incomes, businesses in crisis and depreciation of the local currency, mainly against the euro. These factors have made it harder for people to pay back the loans they took in better times.
Non-performing loans in Albania registered a rapid year-on-year increase at the end of 2008, when they doubled to 6.6 percent of the total portfolio, reflecting the first impacts of the global financial crisis. At the end of 2009, bad loans further climbed to 10.5 percent.