TIRANA, May 16 – A sharp decline in government securities yields has considerably waned interest in the emerging investment funds following their rapid growth in their first three years of operation as a more profitable alternative to investment in traditional bank deposits.
Latest data by the Financial Supervisory Authority show the number of investors has slightly reduced while net assets only modestly increased over the past year.
The number of investors in the two investment funds managed by the country’s biggest lender, Raiffeisen Bank, dropped by an annual 2.6 percent to 32,141 in the first quarter of this year. Meanwhile, net assets grew by 5.7 percent to about 69.5 billion lek (€494 mln) in the first quarter of this year, continuing their growing trend although at a slower pace.
The investment fund market is dominated by investments in government bonds and T-bills accounting for 90 percent of total investments.
Yields on T-bills and government bonds have dropped to a record low after several consecutive cuts to the key interest rate by the country’s central bank. The key rate currently stands at a historic low of 1.25 percent.
Yields on 5-year government bonds dropped to 3.93 percent in early May, down from 4.74 percent last February. Meanwhile, yields on 12-month T-bills, the government’s key instrument for internal borrowing, dropped to an all-time low of 1.38 percent in the latest Bank of Albania auction, down from 2.21 percent in early January 2016.
Yet, investments in government securities remain more profitable compared to traditional bank deposits whose interest rates have dropped to below 1 percent, keeping their growth rate close to zero.
The rapid growth of the emerging investment funds has forced the Albanian government to undertake legal changes strengthening the funds’ risk administration and increasing investor protection.
The International Monetary Fund has also warned that “while these funds have helped diversify the ownership of government securities, they are inadequately supervised and regulated, invest mostly in longer-dated securities and their clients appear to consider these funds as substitutes for bank accounts.”
Currently only two investment funds, Raiffeisen Prestigj and Raiffeisen Invest Euro operate in Albania, making it a pure monopoly market. The funds were established in early 2012 by Raiffeisen Bank Albania, the leading commercial bank operating in Albania. The timing coincided with the decision of Raiffeisen decision to scale back its participation in the public debt market to limit its exposure to the Albanian sovereign debt.
Investments funds represented the second biggest financial market at the end of 2014 with assets estimated at 4.6 percent of the GDP.
The country’s highest financial authorities have recently warned Albanians to be careful with online trading in international stock exchanges, describing such investments as highly risky, especially if offered by unlicensed operators and used by investors lacking appropriate knowledge.
