BoA worried over EU regulations affecting credit growth

TIRANA, May 14 – EU supervisory regulations and risk requirements for European financial groups, along with the approach in which they are implemented, are posing significant constrains on the Albanian economy and the efficiency of monetary policy to respond to economic developments, central bank governor Ardian Fullani has warned speaking at the 10th Vienna Economic Forum.
“These tighter regulations approved by European Supervisory and Banking Authorities and, subsequently, implemented by parent banks have already been accompanied by a decreasing level of credit to the economy,” he said.
“The Albanian economy and its financial market share similar characteristics with the other economies of the region. Our main trade and financial partners come from the EU economy. Therefore, developments in the EU are directly and indirectly transmitted and play an important role in economic developments in Albania,” he added.
Since the second half of 2013, lending has plunged into moderate negative growth rates of around 2 percent as bad loans stand at a record 24 percent.
“It is understandable that banks would have to be careful, prudent and responsible given the current situation with non-performing loans; however, they must also consider the fact that credit and financial intermediation is important for growth, which, in turn, can improve the ability of economic agents to repay their loans. This is especially true for particular sectors like agriculture and agro-business, which, so far, have not benefited from credit expansion, but have large untapped potential for growth,” added Fullani.
Nadeem Ilahi, the IMF Mission chief for Albania, has earlier said the threat of parent banks withdrawing funds suddenly from Albania is not high because banks rely mostly on funding from domestic deposits.
Albania’s banking system remains well capitalized, liquid and provisioning appears to be adequate but high financial euroization, low profitability and non-performing loans being the highest in the region are a significant risk to the banking system, says the IMF in its financial system stability report after an IMF mission visited Albania in late 2013 at a request by Albanian authorities.
Banks represent over 90 percent of total financial system assets, equivalent to about 90 percent of GDP in 2012. The largest five banks hold about three-quarters of system assets and deposits.
Subsidiaries of foreign banks (which include four of the top five banks, including from Austria, Greece, Italy, and Turkey) represent about 90 percent of total banking sector assets.