TIRANA, Nov. 22 – Albania is one of the region’s most euroised economies with euro-denominated deposits and loans accounting for about half of the total and euro cash holdings commonly used as a means for domestic payments, especially real estate and cars, according to a report by the European Central Bank.
In a report examining the euro’s international role, the ECB says unofficial loan and deposit euroisation is salient feature among EU aspirant Western Balkans countries with Kosovo and Montenegro, already using the euro as their de facto currency without the EU’s blessing.
“There are encouraging signs of progress in de-euroisation in the countries concerned, although this progress remains slow and is largely concentrated on the lending side,” says the report.
At Euro 1.9 billion, Euro-denominated loans in Albania dropped to 47 percent of the total credit at the end of 2016, down 2.3 percentage points year-on-year, following a regional trend of central banks applying de-euroisation measures to encourage lending in the local currency in order to boost the efficiency of their easier monetary policies and protect depositors and borrowers from exchange rate fluctuations.
At 47 percent, Albania’s share of euro-denominated loans is slightly higher than in Macedonia but considerably below Bosnia and Herzegovina and Serbia’s 60 and 62 percent shares respectively.
Euro-denominated loans in Albania account for 88 percent of foreign currency loans with the rest being mainly denominated in U.S. dollar.
When it comes to deposits, Albanians prefer to hold 40 percent of their total savings in Europe’s single currency, compared to Euro-denominated deposits accounting for about 36 percent of the total deposits in Bosnia and Herzegovina and Macedonia and 64 percent in Serbia
Albania’s total euro-denominated deposits at the end of 2016 were estimated at about 2 billion euros.
The report says unofficial euroisation is determined by factors such as confidence in the domestic currency, trade relations with the euro area and remittances.
Albania conducts two-thirds of its trade exchanges with Eurozone countries, mainly Italy, and receives about €600 million in remittances from more than 1 million migrants, mainly in Italy and Greece, 40 percent less than pre-crisis peak level a decade ago.
The Euro is a common currency in real estate, car sales and huge inflows from several major energy-related foreign direct investment and the rapidly growing tourism sector have taken Europe’s single currency to an eight-year low of 133.6 lek with a negative impact on the country’s exports. Anecdotal evidence hints the euro has also sharply depreciated as a result of an increase in euro inflows due to a hike in illegal cannabis cultivation and trafficking in the past couple of years.
A survey conducted as part of the ECB report shows euro cash holdings remain widespread in the region with about 30 percent of respondents in Albania reporting euro cash, lower only compared to Bosnia and Herzegovina.
“Results from studies suggest that agents in the region continue to prefer euro cash for reasons that are predominantly related to trust. In particular, depreciation expectations and memories of past crises are important determinants of households’ decisions on whether to save or pay in euro cash,” says the report.
Besides being used for hoarding, euro cash is also used as a means for domestic payments, especially real estate and cars which are frequently paid for in euro in some south-eastern European countries.
Lending in the first half of this year in Albania, mainly grew in the national currency, which now accounts for about 43 percent of total credit, compared to only about a quarter just before the onset of the global financial crisis in 2008. The situation unveils the country’s declining but still high euroization rate, a barrier preventing the transmission of the central bank’s easier monetary policy which has led the country’s central bank to undertake de-euroisation measures for next year.
