Interest rates go sky-high for euro loans

TIRANA, 09 March 2009 — Lack of liquidity, increasing credit risk, monitoring policies, and an unfavorable exchange rate have “boosted” interest rates for loans in euro. Current interest rates in euro have reached 9% in 2d tier banks from 6% it registered before New Year’s. Last week 1 Euro was exchanged with 130 ALL gaining 7 points since December, therefore making loans in euro even more expensive.
Bank of Albania has tried to prevent possible risks deriving from the exchange rates by undertaking more strict policies regarding the banking system and borrowing in foreign currencies in general. One of them was limiting borrowing currency to income currency. In other words, people who were paid in ALL could only borrow in ALL. In addition, taking into account the high rates in euro loans offered by Albanian banks, credit in general has shifted toward those in ALL.
However, despite measures, BoA has announced an overall decrease in crediting growth rate. According to the latest data, credit to economy has grown by 34% this part of 2009 compared to a 50% growth rate experienced the same period last year.
Given the weak ALL in the last two month, experts from BoA have renewed their cautious approach to crediting and have asked all financial players and the public in general to be more rationale with their evaluation and administration of currency exchange risk. They have strongly advised the use of more complex financial instruments, such as future contracts, which should cancel or minimize currency exchange risks.
However, a much needed influx of foreign currency into Albania economy is expected these weeks, thanks to recent privatization deals completed by the Albanian government and a 250 million euro loan collected through foreign financing which in turn should help ALL strengthen its position.