Investment funds grow by 27%

TIRANA, Nov. 12 – With deposits struggling to maintain positive growth rates, the emerging investment funds continue registering significant growth rates due to higher interest rates compared to traditional bank deposits.
Data published by the Albanian Financial Supervisory Authority show net assets in the two investment funds run by the Raiffeisen Bank, the country’s biggest commercial bank, slightly contracted in the third quarter of the year but continued registering double digit growth thanks to good performance in the first two quarters of the year.
The two investment funds increased their net asset value by around 27 percent to a total of 64 billion lek (Euro 450 million) at the end of the third quarter of 2014, compared to the end of 2013.
“The market is dominated by investments in government bonds which represent around 77.5 percent of the funds’ assets, an increase of 17.2 percent compared to the end of 2013. Some 33,179 people are reported to have invested in these funds by the end of the third quarter of 2014,” says the Supervisory Authority in a report.
With the key interest rate standing at a historic low of 2.5 percent and interest rates having dropped to below the average inflation rate, deposits are hardly managing to remain at positive growth rates during the second half of this year. Deposits were up by only 0.35 percent in September 2014 but were down by 2.93 billion lek (around Euro 20 million) compared to August 2014.
Bank of Albania data shows interest rates on 12-month lek-denominated deposits hit a historic low of 1.59 percent in September 2014 down from 1.93 percent last August and 3.41 percent in September 2013. The interest rates are lower even compared to the average inflation rate during the first three quarters of 2014 which stood at 1.75 percent, remaining below the central bank’s mid-term target of 3 percent, and hinting sluggish demand and consumption. Albania’s annual inflation rate dropped to 1.5 percent in September 2014, remaining below the central bank’s lower limit of the target range of 2 to 4 percent for the sixth month in a row, according to INSTAT.
The slowdown in deposits is also a result of sharp cuts in interest rates and more favourable interest rates in the emerging investments funds.
“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,” warns the IMF in its latest report.
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.