TIRANA, June 31 – Credit growth suffered a sharp slowdown in the first half of 2012 when it dropped by 5 percent to 8 percent while deposits preserved their 10 percent growth rate mainly thanks to transfer of deposits from migrants in Greece.
Bank of Albania data show credit to the economy grew by only 8.17 percent in the first half of 2012, down from 13 percent in 2011. On a monthly basis, total credit to the economy shrank by 612 million lek in June 2012. A sharp rise in bad loans (currently at 20 percent), tighter lending standards and falling demand by both businesses and consumers are the reasons behind the moderate credit growth.
Loan rates twice higher compared to deposits also remain a barrier.
Governor Fullani has blamed West European banks present in Albania, which have withdrawn from government securities as the key reason for failure of the monetary policy to have an impact on lowering T-bills yields, which banks use as a reference to determine the interest rates for loans.
Meanwhile, deposits continue their growing trend although to a lower pace thanks to the transfer of deposits especially from crisis-hit banks in Greece where an estimated more than 500,000 migrants live and work has had a key role.
In June 2012, total deposits registered 905 billion lek, increasing by 85.5 billion lek, or 10.4 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.
While domestic consumption and investments remain sluggish preventing the country’s economic recovery, Albanians continue depositing considerable amounts in banks in 2011 uncertain about their futures and fearing a possible escalation of the crisis. Meanwhile, lending continues growing moderately at slightly more than 10 percent compared to the pre-crisis levels of 30 to 50 percent.
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.
Meanwhile, new loans rose 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.
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.
Loan interest rates remain high
Interest rates on lek-denominated loans slightly rose to 11.4 percent in June 2012, up 0.1 percent compared to last May and down only 0.3 percent compared to June 2011 despite the central bank having cut the key interest rate by 1 percent since Sept. 2011. The opposite has happened with Euro-denominated loans which in June 2012 dropped to 7 percent, down from an average of 7.5 percent last May and one year ago reflecting the cut the European Central Bank has made.
High interest rates, tighter lending standards and falling demand by both consumers and businesses are keeping credit growth at relatively low levels this year. Although having lowered the key interest rate by 1 percentage point to a historical record low of 4.25 percent since Sept 2011, the Bank of Albania interventions in the monetary policy have been poorly reflected in lowering interest rates for loans in the domestic currency lek, and T-bill yields.
While average interest rates in June 2012 stood at 11.3 percent, interest rates reach as high as 14.9 percent for 1 to 3-year loans in lek.
