TIRANA, April 26 – Credit to businesses showed signs of recovery in 2016 but that was mainly attributed to lending to businesses abroad, placing the banking system at risk of borrowers operating under foreign jurisdiction, says the country’s central bank.
In its latest financial stability report, the Bank of Albania says the 16 overwhelming foreign owned commercial banks operating in the country sharply increased their exposure to non-resident operators.
Loans to businesses, accounting for about two-thirds of total credit, expanded by 2.4 percent year-on-year but was mainly oriented toward non-residents, says the report.
Credit to non-residents, mainly businesses, rose to 11.3 percent of total credit in 2016, when it climbed to 67.8 billion lek (€497 million), up 25 percent compared to 2015.
By contrast, credit to resident businesses contracted by 0.8 percent, with euro-denominated loans still accounting for about two-thirds of credit, curbing the role of the central bank’s easier monetary policy to promote lending in the national currency.
Non-performing loans in the non-resident category remain low at about 3.3 percent or 2.3 billion lek (€17 million), but since this category of credit is relatively new in the Albanian banking system, the central bank warns the assessment of its quality requires continuous attention and monitoring.
“Mainly awarded in the past few years and relatively new, this kind of credit contains some specifics related to the ability of these banks to properly evaluate the risk of borrowers operating under foreign jurisdiction and that’s why its quality assessment requires continuous attention and monitoring,” says the central bank.
The credit performance was affected by poor demand for new business loans and non-performing loans standing at 21 percent keeping lending standards tight.
Experts hint credit to non-residents is mainly being provided in regional countries, especially in neighbouring Kosovo where euro-denominated loan rates seem more favourable. The country’s biggest commercial bank, Turkish-owned BKT bank has several branches in Kosovo, while Austrian and German lenders Raiffeisen and Pro Credit are also present there.
The Albanian banking system is highly liquid, well-capitalized and profitable. Credit is largely deposit funded with the loan-to-deposit ratio at 52 percent.
The poor domestic credit and high level of non-performing loans in the past few years has not affected the performance of commercial banks in the country which have benefited from lower saving interest rates, invested abroad, and continue dominating about two-thirds of domestic government debt.
Central bank data shows the 16 overwhelmingly foreign owned banks operating in Albania reported net profits of 9.27 billion lek (€68.5 million) in 2016, down 40 percent from a historic high of 15.7 billion lek (€116 mln) in 2015.
Albania’s central bank has been holding its key rate at a historic low of 1.25 percent since one year, but its easier monetary policy has been poorly reflected on boosting sluggish consumption and credit.
