Informal borrowing continues remaining widespread among Albanian households. In 55 percent of cases, Albanian households address friends and relatives as well as local groceries where they buy on credit.
TIRANA, May 19 – More than half of Albanian businesses consider high interest rates as the key barrier in borrowing from banks, according to a survey carried out by the Bank of Albania. Businesses also consider credit insurance terms, the appropriateness of the credit structure and lack of transparency in the approval and monitoring of loans by banks as factors of average difficulty.
The findings come at a time when lending to businesses has plunged into moderate negative growth rates of around 2 percent as non-performing loans stand at a record 24 percent.
Three out of five Albanian businesses (some 59 percent) reported having a loan to pay off at the end of 2013, up 5.2 percent compared to the first half of 2013, according to the survey with around 730 businesses nationwide published in the financial stability report for the second half of 2013.
Businesses say they mostly use loans to handle short-term financing needs rather than investments. The surveyed companies continued reporting a slowdown in sales at the end of the second half of 2013.
“The decrease in sales has been accompanied with lower profits and a decline in investments for all sectors,” says the survey.
For an overwhelming majority of 91 percent of businesses, the repayment of loans takes up to 50 percent of their income, says the survey.
Informal borrowing widespread
The number of Albanian households reporting a loan to pay off dropped to 29 percent at the end of the second half of 2013, down 5 percent compared to the first half of 2013. Some 61 percent of households have monthly income of 17,000 to 50,000 lek (Euro 120 to 350), shows the central bank survey.
Informal borrowing continues remaining widespread among Albanian households. In 55 percent of cases, Albanian households address friends and relatives as well as local groceries where they buy on credit and choose banks and non-bank financial institutions in only 45 percent of cases.
Consumption and the purchase and repair of property remain the main causes of borrowing accounting for 37 percent and 34 percent respectively, registering an increase by 2 percent compared to the first half of 2013.
The survey shows Albanian households experienced a deterioration in their repayment ability in the second half of 2013. Some 55 percent of the households said the decrease in their household income was the main reason behind the deterioration of their repayment ability followed by an increase in their daily expenditure for 23 percent of the households.
The latest survey by the Bank of Albania was carried out in late 2013 analyzing the financial situation and lending among 1,210 households in 17 districts of Albania.
Businesses have also been turning to informal channels after being classified by banks as unreliable borrowers as band loans stand at around 24 percent. Local media report construction companies, whom government owes millions of Euros for finished public works, are the most engaged in informal borrowing whose interest rates range up to 5 percent compared to an annual 10 to 12 percent in banks. In crisis since the onset of the global financial crisis and facing liquidity problems the construction sector has been widely using the bartering practice which involves the exchange of goods or services with other goods or services, rather than with money.
Loan interest rates at record low
Two months after the key interest rate was cut to a historic low of 2.75, the transmission mechanism of the central bank’s monetary policy is finally having a positive impact on reducing the cost of borrowing for households and businesses.
Average interest rates on lek-denominated loans registered a historic low of 7.96 percent in March 2014, down from 9.14 percent in February 2014 and 11.14 percent in March 2013, according to Bank of Albania data.
Meanwhile, interest rates on Euro-denominated loans also slightly dropped to 6.93 percent, down from 6.94 percent in February 2014 and 6.85 percent in March 2013
Experts say the lower interest rates could give a new impetus to lending which since the second half of 2013 has plunged to moderate negative growth rates of around 2 percent as non-performing loans stand at around a quarter and demand remains low by both households and businesses at a time when the Albanian economy is struggling with its poorest growth rates in more than a decade.
Since September 2011, the Bank of Albania has cut the key interest rate by 2.5 percent to 2.75 percent in several consecutive interventions, but the moves have been mostly reflected on lower T-bill yields and interest rates for lek-denominated deposits.
Data show lending to the economy shrank by 1.25 percent in 2013, registering the first decline in the past five global crisis years. After growing by 30 to 50 percent annually in the pre-crisis years, lending grew by an average of 10 percent from 2009 to 2011 but sharply decelerated to 2.36 percent in 2012 as bad loans hit more than 22 percent.
Differently from loans, 63 percent of which are issued in foreign currency, mainly in Euro, the situation with deposits appears more balanced with lek deposits accounting for 52 percent of total deposits.
More Albanians plunging into poverty
Albania’s poverty rate increased by 2 percent or around 29,000 people in the 2008-2012 period as the country’s GDP growth rate dropped to an average of 3 percent down from 6 percent annually in the pre-crisis years. The results are confirmed in a recent living standard measurement survey conducted by Albania’s state Institute of Statistics and the World Bank.
The survey carried out in September-October 2012 on around 6,670 households nationwide showed the number of people who live below the poverty line in Albania rose by around 2 percent to 14.3 percent in the past four crisis years. “The fraction of the population whose real per capita monthly consumption is below Lek 4,891 (Euro 34.6, USD 46) increased from 12.4 percent in 2008 to 14.3 percent in 2012. In the previous years, poverty fell from 25.4 percent in 2002 to 18.5 percent in 2005 and 12.4 percent in 2008. This means that roughly 28,896 people in addition to 373,137 poor people in 2008 fell into poverty.”
