Bank clients have abandoned loans in lekes as interest rates for the national currency continue to remain higher than the euro. According to the Bank of Albania, credit in Lekes has experienced only a slight growth during the first part of the year, compared to the year 2006.
Higher interest rates on loans are attracting second level banks since the disparity in currencies began in the beginning of the year. Although the effects on these financial institutions are explained through the increases in base interest rates, the cost of intermediation in lekes has gone up. According to the report of the monetary policy of the Bank of Albania, in the past two months, the increase of 14 million lekes in loans has slowed down compared to the first quarter of the year, which is in line with the forecast of this institution.
Bad debt at minimal levels
While the intermediation rates (the difference in credit-deposit) for part of the banks reaches over 10 percent, the level of bad debt continues to remain at low levels in our banking system. Such a situation is affirmed by the Bank of Albania as well, which evaluated loan repayments during the first part of the year at high levels.
Credit in the national currency abandoned
The credit structure by currency in this period has been dominated by foreign currency, states the Central Bank. During the second quarter, credit in foreign currency has maintained the same growth rates as in the first months of the year (53 percent, annual terms). The main contribution has been given by credit to businesses. However, credit to individuals shows higher rates. Compared to the first quarter, there has been a slight improvement in the loan portfolio in leke, which reached 28.6 percent in May. However, annual growth rates of credit in leke continue its downward trend (63.1 percent in May, compared to 71.1 percent for the first quarter).
By category, most of the credit to businesses has gone towards the financing of the purchase of equipment. However, compared to the previous quarter, we notice an increase in loans to businesses for working capital and overdraft (48.5 percent of the business loan portfolio).
By sectors of the economy, the second quarter showed a moderate increase in credit towards agriculture, construction, and public services. Although the trade sectors showed a decreased portfolio, it remains the most credited sector of the economy, with a 20 percent share of the credit portfolio.
Interest rates go up for leke and foreign currencies
The good times when the cost of money was low seem to be over. Increases in interest rates, which translate in higher investment costs, have accompanied the past two years of specialists’ debates. The Bank of Albania, like the European Central Bank and the American Federal Reserve has raised interest rates by 0.5 percent in leke in one year. Voices are heard about continued increases in the coming months.
For the national currency, average interest rates applied by banks vary from 16.7 percent to 10.1 percent for different loan terms. The most expensive loan in leke is the one with terms of 1-3 years, where interest rates reach 16.7 percent, while the cheapest loan in leke has a term of 6-12 months and an interest rate of about 10.1 percent. Compared to 2006, credit in the domestic currency is going up for most maturation terms.
The same situation applies for credit in foreign currency. Although credit in foreign currency, and especially in Euros, remains the most inexpensive, interest rates have been on an upward trend. The highest average interest rates for loans dominated in the European currency has been 9.51 percent for the term of 1-3 years, while the lowest rates of 7.96 percent apply to the six month loan term.
As far as the American currency in concerned, the interest rates trend by maturity terms have been the opposite of that of the Euro. Thus, banks offer the highest interest rates, of about 12.25 percent, for short-term loans (up to six months) in dollars.
