“Some 77.3 percent of surveyed businesses say they have not borrowed from banks during the past six months. Around 84.4 percent of businesses also do not plan to borrow in the next six months,” says the BoA survey
By Ervin Lisaku
TIRANA, Dec. 6 – Facing lower retail sales for more than one year, and lending standards becoming tighter as bad loans stand at 18 percent, three-quarters of businesses operating in Albania say they have not borrowed from banks during the past six months and four out of five do not plan to do so in the next six months. The findings are revealed in a survey published in the latest Bank of Albania monetary policy report for the third quarter of 2011.
“Some 77.3 percent of surveyed businesses say they have not borrowed from banks during the past six months. Around 84.4 percent of businesses also do not plan to borrow in the next six months,” says the survey citing tight lending standards and high interest rates as the main reasons.
The minority 22.7 percent of business that have borrowed in the past six months and 15.6 percent of those planning to borrow in the next six months will spend the majority 53.1 percent of their credit to finance floating capital and inventory, says the survey.
Businesses operating in the four key sectors of industry, construction, services and trade use profits from their activity as the main source of finance.
The construction sector, which has been in crisis since 2008 global crisis, faced a decrease in all its sources of finance as sales have dropped and new construction are prevented by lack of permits.
As far as consumers are concerned, the Bank of Albania survey says savings as bank deposits have grown to 59.7 percent but low interest rates prevent a considerable number of consumers, some 38 percent to deposit their savings keeping them as cash instead.
Investments in T-bills and T-bonds, which are more affordable, remain at a small level.
The survey shows around 90 percent of surveyed consumers keep their savings in the national currency lek, as the main currency of income for 96 percent of surveyed people.
The latest Bank of Albania survey show the country’s Economic Sentiment Indicator (ESI), measuring both consumer and business expectations continues remaining 12.1 percentage points below its long-term average, according to the latest Bank of Albania survey. Confidence in the industry, construction, services sectors and among consumers slightly improved with overall economic situation perception remaining negative.Meanwhile, another survey published in the latest Bank of Albania financial stability report for the first half of 2011, revealed 24.8 percent of Albanian households and 42.8 percent of businesses has a debt to pay mostly informally but also to banks.
Compared to the second half of 2010, the Bank of Albania reports a 6.7 percent rise in household borrowing from banks and a 4.4 percent increase in informal lending.
The situation for businesses appears even grimmer with 26 percent of them declaring that their debts are unaffordable, reflecting a drop in domestic consumption and the low level of investments.
Loan, deposit interest rates
The latest BoA monetary policy report shows that average interest rates for new lek-denominated loans dropped to 11.66 percent in the third quarter of 2011, down 0.2 percent and 1.24 percent compared to the first and second quarters respectively. This is despite the Bank of Albania raising the key interest by 0.25 percentage points from March 2011 to Sept. 2011 to curb inflation pressures.
The latest central bank lowering the key interest rate to a historical low of 4.75 in two separate interventions during the past two months is expected to further lower interest rates for lek.
Interest rates for Euro denominated loans, which account for around 70 percent of total lending, rose by 0.35 percentage points to an average of 7.76 percent in the third quarter of 2011, up 0.35 percent compared to the previous second quarter. Meanwhile, interest rates for lek and Euro deposits continued its growing trend even in the third quarter also because of banks promotional campaigns following the arrival of migrants to spend their summer holidays home.
Interest rates for lek-denominated loans rose to an average of 5.26 percent, up 0.55 compared to the second quarter of 2011. Interest rates for time deposits in euro also rose to 2.73 percent, up 0.43 percent compared to the previous quarter.
Experts say that there are claims that commercial banks have largely increased the loan costs for their customers, which seems like a paradox in a situation where interest rates for deposits are low. The Albanian banking system has traditionally applied interest rates twice as high for loans in Albanian Lek compared to interests that banks apply to deposits. For loans in US dollars and Euros, this ratio is 2-4 times higher.
