Some 31 percent of households and 56.4 percent of businesses say they currently have a debt to pay. The majority 54 percent of households have borrowed informally even from local shops on food products.
TIRANA, Nov. 12 – One in three households and one out of two businesses already have a debt to pay and do not plan to borrow again in the next six months, a Bank of Albania survey published in the financial stability report for the first half of 2012 has unveiled. The results reconfirm the difficult situation both households and businesses are facing as crisis impacts in Albania escalate with domestic consumption failing to recover because of consumers’ falling purchasing power and their rising saving trend expecting harsher times ahead. The situation has also affected businesses which have cut jobs and investments and are struggling to survive. Bad loans at an official 22.3 percent at the end of the third quarter of 2012 is the clearest indicator of the difficult situation both consumers and businesses are facing to pay off loans they took in better times. While business confidence continues its downward trend, consumers became slightly more optimistic in the third quarter of 2012 on improved savings, big purchases and expectations about their financial situation, according to the latest survey published by the Bank of Albania. The slight improvement in the consumer confidence could not prevent the downward trend of the Economic Sentiment Indicator which dropped by 2.3 percent to 76.1 percent in the third quarter of 2012. The situation is a result of 6 percent drop in confidence in the construction and services sectors and 1.4 percent decrease in the confidence index of the industry sector
Meanwhile, the tight lending standards the 16 commercial banks operating in Albania are applying remained unchanged for both businesses and individuals even in the third quarter of this year, despite demand continuing its downward trend, according to central bank survey.
Individuals
Some 31 percent of more than 1,000 surveyed households said they currently have a debt to pay, which marks a 4 percent increase compared to the second half of 2011. The majority 54 percent of households have borrowed informally from friends and relatives. What’s more concerning is that 15 percent of the surveyed households said they buy on credit from local shops. Borrowing from banks and non-banking financial institutions accounts for 43 percent of the total household’s debts. One in three households borrows to buy and repair immovable property and one in four to finance consumption. The overwhelming 91 percent of debt is taken in the domestic currency, lek, mainly because of the high level of informal borrowing. Some 32 percent of the debtor households say their debt repayment ability has worsened mainly because of a drop in revenues and an increase in basic spending. As a result, almost half of debtor households have cut their spending and only 8 percent of them have demanded a renegotiation of their credit terms. A quarter of households expect their paying ability to worsen in the next six months and two-thirds say they will take no new loans in the next six months. Self-employment, pensions, and private sector work are the main sources of revenue for individuals at 25 percent, 28 percent and 24 percent respectively.
Businesses
The situation with businesses appears even more difficult with 56.4 percent of more than 700 surveyed businesses saying that have at least one debt to pay. Only around 16 percent of the businesses said they extended their activity by making investments during the past six months. Around half of the surveyed enterprises declared lower profits for the first half of the year. “Under conditions when the majority of businesses say that over 80 percent of their products are traded domestically, the slowdown of the economic activity in the country has affected sales,” says the survey. Handing short-term expenditure is the key reason of borrowing by businesses in 35.6 percent of the cases. Only one in three businesses borrows for long-term investments. Debt accounts for around half of the company’s capital and costs companies around 20 percent of their income. Some 63.7 percent of businesses say they do not intend to take a new loan in the second half of 2012.
