Tirana Times
TIRANA, Aug. 31 – Bank of Albania governor Ardian Fullani says low demand by businesses is the key problem for low lending levels. Speaking at a press conference on Wednesday, governor Fullani appealed to both citizens and businesses to borrow from the Albanian banking system which he says is well-capitalized and ready to meet their demand.
“The Albanian banking system remain solid and is heading toward long-term stability and is ready to lend, but as I have stressed the main problem recently has been low demand,” said Fullani.
Businesses’ low demand for new loans seems to have been conditioned by consumers’ saving trend which expect harsher times ahead. Lower consumption is also confirmed by the decrease in retail sales during the beginning of this year.
Despite the risk bad loans pose, Albania’s central bank describes the Albanian banking system as safe which is confirmed by both the credit and deposit growth. Although not at the pre-crisis levels of 30 to 50 percent, new loans and deposits grew by more than 10 percent year-on-year during the first half of this year.
However, bad loans are becoming the key factor influencing on the tightening of standards, especially for businesses. The latest Bank of Albania survey shows lending standards for businesses became tighter in the second quarter of this year and are expected to further tighten in the third quarter.
Banks’ profits during the first half of this year dropped by more than three times year-on-year as bad loans continued their rising trend in the second quarter of 2011, confirming the difficult situation businesses and individuals are facing to pay off their debts. Latest data published by Albania’s central bank show banks’ net profit during the first half of this year dropped to 1.123 billion lek ( USD 11.23 million, Euro 8 million), down from 3.6 billion lek (USD 36 million, Euro 25.7 million) in the first half of 2010. The situation was a result of a sharp increase in the commercial banks’ bad loan portfolios which reached 16.61 percent at the end of the second quarter of this year, up from 14.42 percent in the first quarter of 2011 and 12 percent in the second quarter of last year.
The Bank of Albania decided to keep the key interest rate unchanged at 5.25 as inflation pressure are lowering. Inflation rate last July was 3.6 percent, remaining within the central bank’s 3ѱ percent target.
Inflation rate during the first half of this year has been at 4.05 percent, exceeding the central bank’s target by 0.5 percent mainly because of higher food prices in international markets and the increase in some excises taxes.
Last March, BoA raised the repo rate by 0.25 percentage points to 5.25 percent after keeping it unchanged at 5 percent, one of the lowest historical levels, for eight months. Governor Ardian Fullani said the move was aimed at keeping inflation rate in check following a sharp rise in consumer prices last February.
The central bank estimates that GDP growth has preserved the early 2011 rates even in the second quarter of this year. Latest data published by the country’s Institute of Statistics show the Albanian economy grew by 3.4 percent in the first quarter of 2011 year-on-year with transport, industry, construction and trade as the key sectors contributing to the growth.
