The two investment funds run by the Albanian subsidiary of Raiffeisen Bank, the country’s biggest commercial bank, increased their net asset value by around 30 percent to a total of 65 billion lek (Euro 458 million), compared to the end of 2013.
TIRANA, July 28 – With deposits striving to remain at positive growth rates due to a sharp drop in interest rates, the recently established investment funds are emerging as substitutes for bank accounts due to more favourable rates.
Data published by the country’s Financial Supervisory Authority show the two investment funds run by the Albanian subsidiary of Raiffeisen Bank, the country’s biggest commercial bank, increased their net asset value by around 30 percent to a total of 65 billion lek (Euro 458 million), compared to the end of 2013.
“The market is dominated by investments in government bonds which represent around 80 percent of the funds’ assets, an increase of 22 percent compared to the end of 2013. Some 34,885 people are reported to have invested in these funds by the end of the first half of 2014,” says the Supervisory Authority in a report.
While lending has plunged into moderate negative growth rates of around 2 percent since the second half of 2013, the situation with deposits continues deteriorating with Albanians’ savings hardly managing to maintain positive growth rates, especially because of interest rates having dropped to a record low and at around the same level to annual inflation rate.
Latest data published by the Bank of Albania show deposits grew by only 0.86 percent year-on-year in May 2014, the lowest growth rate since late 2008 and early 2009 when banks in Albania witnessed panic deposit withdrawals in the face of spillovers from instability of global financial markets which were compounded by concerns about the health of the Greek banking system in the fall of 2008.
With the key interest rate standing at a record low of 2.5 percent, average interest rate on lek-denominated deposits dropped to a historic low of 1.94 percent in May 2014, down from 2.21 percent last April and 5.11 percent in May 2013.
IMF worried over
investment funds
Systemic risk in the Albanian financial system has increased with the recently established investment funds, warns the IMF in its latest financial system stability assessment report.
“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. Given the lack of a functioning secondary market for government bonds, the funds face high liquidity risk. Moreover, given the close links with banks, redemption pressures may spill over into deposit runs on banks.”
The IMF encourages Albanian authorities to lessen the systemic risks arising from the large holdings of government securities by banks and investment funds.
“Establishing a regulation with minimum liquidity and capital standards for investment funds is an immediate priority, and these funds should be required to have adequate liquidity contingency arrangement with banks. Their assets should also be fully marked to market. In addition, it is important to support the development of the secondary market by rationalizing bond issuances and expanding the range of assets that banks can use to meet the Central Bank of Albania’s (BoA) liquidity requirement by including all tradable government securities with longer maturities and, similarly, expanding the range of collateral accepted in BOA operations.”
Investment funds increased their share to the GDO to 3 percent in 2013, overcoming non-bank financial institutions with 2.5 percent and insurance companies with 1.6 percent.
Currently only two investment funds, Raiffeisen Prestigj and Raiffeisen Invest Euro operate in Albania. 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.
The financial sector in Albania is concentrated and dominated by foreign banks. Banks represent over 90 percent of total financial system assets, equivalent to about 90 percent of GDP in 2012. The remainder of the financial system is small (6 percent of financial system assets). As of mid-2013, it included 11 insurance companies, 2 investment funds, 124 Savings and Credit
Associations (SCAs) in 2 unions, 2 independent SCAs, 3 pension funds, and 21 other non-bank (that is, non-deposit-taking) financial institutions.
