TIRANA, Aug. 11 – The emerging investment funds continued registering moderate growth in the first half of this year when traditional bank deposits slowed down due to interest rates standing at a historic low.
A report published by the country’s Financial Supervisory Authority shows the only two investment fund operators controlled by Raiffeisen Bank, the country’s biggest commercial bank, are emerging as a more competitive alternative for investing savings due to higher interest rates compared to traditional bank deposits.
Albanians are withdrawing deposits from banks to invest them in the more profitable newly established investment funds, according to data published by the country’s central bank and the Financial Supervisory Authority.
Data shows Albanian households withdrew around 6 billion lek (€42.2 mln) in deposits from banks and invested around 3.73 billion lek (€26 mln) in investment funds in the first half of this year compared to the end of 2014.
Net assets in the two investment funds rose by 5.85 percent to 67.47 billion lek (€473.7) compared to the end of 2014, but were up by only 3.7 percent compared to the first half of 2014 when the funds were registering strong double-digit growth rates following their establishment in 2012.
“The market is dominated by investments in government securities which represent around 81.3 percent of the funds’ assets, an increase of 2.55 percent compared to the end of 2014,” says the Supervisory Authority in a report.
Some 34,098 people are reported to have invested in these funds by the end of the first half of 2015, up from 32,669 at the end of 2014 and 28,422 in 2013.
Meanwhile, bank deposits slowed down to 1.7 percent in the first half of this year as interest rates stood at a record low and facing tougher competition from the emerging investment funds offering higher interest rates.
Interest rates on lek-denominated deposits dropped to an almost record low of 1.44 percent in June 2015, the same to the annual inflation rate. Interest rates on Euro-denominated deposits also remained at a historic low of 0.28 percent for the second month in a row as the European Central Bank continues keeping its key rate at a historic low of 0.05 percent.
Central bank data show the deposit growth slowed down to 2 to 3 percent in 2013 and 2014, down from 6.3 percent in 2012, and 11.7 percent in 2011, unveiling the downward trend in consumers’ saving trend.
The rapid growth of investment funds favoured by higher interest rates compared to the traditional bank deposits has forced the Albanian Financial Supervisory Authority to undertake legal initiatives targeting increased transparency toward investors and the funds’ risk administration.
The International Monetary Fund has also warned that “while these funds have helped diversify the ownership of government securities, they are inadequately supervised and regulated, invest mostly in longer-dated securities and their clients appear to consider these funds as substitutes for bank accounts.”
Currently only two investment funds, Raiffeisen Prestigj and Raiffeisen Invest Euro operate in Albania, making it a pure monopoly market. The funds were established in early 2012 by Raiffeisen Bank Albania, the leading commercial bank operating in Albania. The timing coincided with the decision of Raiffeisen decision to scale back its participation in the public debt market to limit its exposure to the Albanian sovereign debt.
Investments funds represented the second biggest financial market at the end of 2014 with assets estimated at 4.6 percent of the GDP.
