TIRANA, Aug. 2 – Lending to the economy showed signs of recovery last June when it almost overcame its downward trend for the past l2 months as credit registered a negligible annual contraction of 0.03 percent, according to the country’s central bank.
The real credit recovery is estimated to be higher, at 3 percent, considering the write-off of bad debt from banks’ balance sheets statistically keeping lending at negative growth rates of about 2 percent for the past year.
Banks wrote off 26.6 billion lek (€191 million) in 2015 after a new regulation requiring the mandatory write-offs of loans that have spent three years in the “loss” category came into force at the beginning of 2015, according to the central bank.
However, with non-performing still at a high level of 18 percent, banks continue applying tight lending standards for both businesses and households while the consecutive cuts to the key interest rate, currently at a historic low of 1.25 percent, have been poorly reflected in loan interest rates. The gap between loan and deposit rates has increased to more than 8-fold compared to about 3-fold in the pre-crisis credit boom, triggering a probe by the country’s competition authority over allegations of limited competition leading to high loan interest rates and standstill in lending.
Average interest rates on lek-denominated loans slightly rose to 7.3 percent last June compared to a historic low of 6 percent last April at a time when deposit rates for the national currency dropped to all-time low of 0.77 percent.
The poor recovery of lending also reflects sluggish demand and uncertainties by both the business community and households as the country’s economy continues growing at sluggish growth rates of 2 to 3 percent, mainly driven by some private sector energy-related investments.
Lending to the economy has been striving to maintain positive growth rates since 2012 after growing by 30 to 50 percent annually in the pre-crisis years and an average of 10 percent from 2009 to 2011.
Meanwhile, deposits struggled to recover last June when they increased by a mere 0.5 percent, affected by historic low interest rates of only 0.77 percent, pushing investors to seek other riskier investment opportunities, including online trading.
