Credit growth drops to 6.5%, deposits up by 10%

TIRANA, Oct. 2 – Bad loans at a record high level of 21 percent, tighter lending standards and a sharp drop in demand by both businesses and individuals are seriously affecting Albania’s credit growth during this year. Latest central bank data show total lending grew by only 6.5 percent in the first eight months of this, almost half of the credit growth in 2012, reflecting the difficulty both businesses and consumers are facing as domestic consumption remains at low levels and new investments have been postponed.
Total credit to the economy at the end of Aug. 2012 registered 552 billion lek, down 1.25 billion lek compared to last July, but up 33 billion lek compared to Aug. 2011.
The situation with deposits appears more stable due to consumers’ saving trend fearing harsher times ahead and the transfer of deposits by migrants in Greece.
In Aug. 2012, total deposits grew by 10 percent to 930 billion lek, reconfirming the confidence citizens have in the Albanian banking system which is also proved by the indicators such as the
loan-to-deposit ratio at 60.4% and the capital adequacy ratio at 15.9%, above the BoA’s minimum requirement of 12%.
In August 2012, total deposits registered 930 billion lek, increasing by 85 billion lek, or 10 percent year-on-year. Deposits in foreign currency are reported to have grown by 51.1 billion lek (Euro 365 million) year-on-year in June 2012. Data show 12-month Euro-denominated deposits in August, when most migrants return home to spend their holidays grew by 345 million euros.
Credit to individuals during the first half of 2012 shrank by 4.5 percent while loans to businesses grew by 13.7 percent.
Lending standards remained tight even in the second quarter of 2012 despite demand for new loans continuing its downward trend. The latest central bank survey shows lending standards were slightly tightened for SMEs mainly to finance investment, while big enterprises and individuals had standards unchanged.
Expectations for the third quarter of 2012 are rather more optimistic with banks keeping lending standards unchanged for businesses and slightly easing them for individuals.
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. Bad loans and delays in collateral execution are the key reason for lending standards becoming tighter despite demand having considerably dropped by both individuals and businesses as domestic consumption remains at low levels and the market seems to have reached a saturation point.