A sharp rise in bad loans, tighter lending standards and falling demand by both businesses and consumers are the reasons behind the downward trend in credit growth
TIRANA, Dec. 3 – Bad loans at a record 22 percent and falling demand by both businesses and individuals for new loans have considerably affected credit growth this year which is struggling to preserve its growth rates, registering the lowest rates in the past decade. After registering record high growth rates of 30 to 40 percent in the pre-crisis period until 2008, and maintaining moderate growth of 10 to 12 percent even from 2009 to 2011, credit growth has decelerated to as low as 4 percent in 2012. Latest central bank data show total credit at the end of October 2012 was at 552 billion lek, up only 4 percent year-on-year. Compared to the end of 2011, total lending during the first ten months of this year has increased by only 10 billion lek or 1.9 percent.
A sharp rise in bad loans, tighter lending standards and falling demand by both businesses and consumers are the reasons behind the downward trend in credit growth. In 2011, lending grew by 58.4 billion lek (Euro 410 million) to 531 billion lek, recording a 13 percent increase, the highest annual growth rate since 2008 when lending grew by 35 percent. 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.
Latest quarterly Bank of Albania data show credit to businesses decelerated to 9.2 percent year-on-year in the third quarter of 2012, down from 19 percent in the third quarter of 2011. The severe situation with lending is better unveiled with the performance of credit to individuals which in the first three quarters of 2012 shrank by 3.9 percent.
Specific problems in the sector where businesses operate, the situation with bad loans, and the general macroeconomic situation are the key factors contributing to tougher lending standards for businesses. Apart from the non-performing loan indicator, individuals’ financial situation and developments in the real estate market also affected the tighter standards for individuals, according to the survey.
Differently from loans, 63 percent of which are issued in foreign currency, mainly in Euro, the situation with deposits appears more balanced with lek deposits accounting for 52 percent of total deposits.
Deposits
While domestic consumption remains sluggish, Albanians continue maintaining their saving trend reflected in their rising bank deposits although at a slower pace compared to previous years. Total deposits at the end of October 2012 reached around 933 billion lek, up 7.6 percent year-on-year. Compared to the end of 2011, Albanians have increased their deposits by 57 billion lek or 6.5 percent. The crisis impacts have reduced citizens saving trend, with deposits in the third quarter of 2012 increasing by only 8.8 percent, down from 13.5 percent during the same period a year ago.
After panicky withdrawing around 10 percent of total deposits (Lek 62.7 bln, Euro 440 mln) in the final quarter of 2008 and in early 2009 in the face of spillovers from instability of global financial markets, Albanians have returned to deposits and cut down on credit seeing less investment opportunities in a saturated market where consumption is declining for consecutive quarters as shown by INSTAT data on retail sales.
Central bank data show deposits grew by around 193 billion lek (Euro 1.35 bln) to 881.3 billion lek in 2011, registering an 11.7 percent increase, lower compared to the 18.5 percent growth rate in 2010, but better compared to 2008 and 2009 at 2.2 percent and 6 percent respectively.
Data show the overwhelming majority of 95 percent of Albanian depositors have managed to save up to 2.5 million lek (Euro 17,667, USD 22,737) which is the threshold making them fully safe and guaranteed by the Deposit Insurance Agency. The remaining 5 percent of depositors having more than 2.5 million lek in their bank accounts possess around 58 percent of the total amount of deposits in the 16 commercial banks operating in Albania, according to data presented in the annual report of the Deposit Insurance Agency. The data reconfirm the deep social gap between the rich and the poor. Average deposits for the rich stand at 55,000 USD while the average savings for the overwhelming majority is at around USD 2,000.
