Albania’s central bank has approved 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
TIRANA, April 2 – The business community, commercial banks and financial experts have welcomed a package of measures adopted by the central bank to boost lending which has recently slowed down to a record low of 2 percent. Arjan Kadareja and Adrian Civici, both members of the Bank of Albania Supervisory Council say the changes to the regulations are in line with needs banks could have on capitalization or liquidity as well as the ease of conditions on the restructuring of loans.
The changes to the Bank of Albania regulations approved last week, foresee that demands on capital will be removed if banks increase their loan portfolio by an annual 4 to 10 percent, stimulating banks to increase their lending by at least 4 percent annually. The temporary changes will apply only for the 2013-2014 period.
The liquid assets to short term liabilities ratio is expected to drop to 20 percent, down from 25 percent providing banks with space to increase their lending rates. Another change envisages that banks can restructure loans without affecting their non-performing loan portfolio and at lower provisioning costs.
Zef Preci, the director for the Albanian Institute for Economic Studies hails the Bank of Albania initiative warning that the ease of regulatory standards must not affect the selection of reliable customers by banks. Pointing out that the consecutive cuts to the key interest rates have had an impact only on lower T-bill yields, Preci suggest that banks must increase their efforts in providing loans to the private sector rather than using deposits for investments in government securities.
Last week, Albania’s central bank approved 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.
