TIRANA, July 30 – Albanians increased their euro-denominated credit and savings by around €100 million in 2017 when lending in the national currency continued gaining ground but yet remaining below half of the total credit, according to reports by the European Central Bank and the Bank of Albania.
A European Central Bank report on the international role of the euro shows euro-denominated savings by Albanian households and businesses rose by a mere €64 million to €3.5 billion in 2017 to account for 43.5 of total savings with the banking system and 85.3 percent of total foreign currency deposits.
Euro-denominated savings have been constantly increasing in Albania where the euro is quite a common currency especially in real estate and vehicle trade.
Meanwhile, credit in Europe’s single currency increased by a mere €41 million to €1.88 billion in 2017 as lending in the national currency increased its share to 45 percent of the total compared to only a fifth a decade ago just before the onset of the global financial crisis.
Euro-denominated loans accounted for 47 percent of the total credit at the end of 2017 with U.S. dollar loans as the second largest foreign currency loans.
The high euroisation levels are part of a Western Balkan trend where half of total loans and deposits are denominated in foreign currency, mostly euro. Kosovo and Montenegro, already use the euro as their de facto currency without the EU’s blessing.
A previous ECB report has shown unofficial euroisation in the Western Balkans is determined by factors such as poor confidence in the domestic currencies, trade relations with the euro area and Euro-denominated 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, about 40 percent less than pre-crisis peak level a decade ago.
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.
Starting mid-2018, Albania’s central bank has been implementing some de-euroisation measures in a bid to accelerate the reduction of the current high levels of foreign currency in the country’s banking system, considered a key barrier for the transmission of its easier monetary policy and giving a boost to sluggish credit and consumption.
Albania’s central bank governor says the de-euroization measures will target a gradual reduction in the current widespread use of Europe’s single currency by about 10 percent to below 40 percent as the International Monetary Fund has suggested.
The measures involving higher reserve ratios for foreign-currency assets are expected to make it more expensive for banks to provide Euro-denominated loans, triggering an eventual hike in interest rates and discouraging borrowing in Euro, currently accounting for about half of total.
The de-euroisation package also targets offering protection against currency exchange fluctuations that could hurt both savers and borrowers.
Europe’s single currency is currently trading at a 10-year low of about 126 lek against the Albanian lek with a series of negative effects on Eurozone exporters, local producers facing tougher competition from cheaper imports as well as euro-denominated savings and remittances.
