TIRANA, March 1 – Albania’s emerging investment funds suffered their first contraction in 2016 after rapid growth in their first four years of their operation, apparently affected by a sharp decline in government security yields which hit a record low last year as the key interest rate was cut to a historic low of 1.25 percent.
Net assets in the three investment funds slightly dropped to 65.4 billion lek (€483 mln) in 2016 as membership dropped by about 9 percent to 29,276 investors, according to a report by the country’s Financial Supervisory Authority.
The 2.3 percent market decline came as a third investment fund entered the market in mid-2016, breaking the monopoly held by the Albanian subsidiary of Austria’s Raiffeisen Bank, the country’s traditional largest lender which has been overtaken by Turkish-run BKT in the past year.
In August 2016, Credins Premium, a new investment fund whose majority stake is held by Albanian-owned Credins bank, became the third investment fund joining Raiffeisen Prestigj and Raiffeisen Invest Euro, both of which operational since early 2012.
The market is dominated by investments in government bonds and T-bills, accounting for 78 percent of total assets, a 9 percent decline compared to 2015.
The decline in investment fund assets came as traditional bank deposits grew by 2.9 percent in 2016 hitting a record high of 1 trillion lek (€7.5 billion) and accounting for 70 percent of the country’s GDP despite average interest rates standing below 1 percent.
In its latest report, the International Monetary Fund warns there is an increasing urgency to strengthen the supervisory authority’s capacity over investment funds.
“With the investment funds growing and with their portfolios heavily concentrated on illiquid government securities, there is an increasing urgency to strengthen the Albanian Financial Supervisory Authority’s capacity and crisis preparedness,” says the IMF as new investment fund regulations on liquidity requirements and asset valuation are expected to be fully phased in by mid-2017.
Investments funds represent the second biggest financial market with assets estimated at 4.6 percent of the GDP. Their 2017 prospects appear more optimistic as market competition has increased with the launch of a new operator and government security yields have embarked on a rising trend.
Yields on two-year notes, the government’s key instrument for long-term debt in the domestic market, slightly fell to 3.35 percent in the latest mid-February auction, but more than doubled compared to a record low of 1.5 percent June 2016.
Meanwhile, yields on 12-month T-bills, the government’s key instrument for internal borrowing, also slightly fell to 2.81 percent in the latest Feb. 21 auction, following a gradual upward trend after hitting a historic low of 1.24 percent last June.
Investment funds, slowed down to a 5 percent growth in 2015 following strong double-digit growth rates in their first years of operation when savers also withdrew deposits to invest in more favourable investment funds.
With interest rates in traditional deposits and investment funds at a low rate, the country’s highest financial authorities have 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.
