Lek Gaining Strength

TIRANA, Sep 30ؔhe strategy of the central bank to shift bank lending to economy from euro to Lek has finally gained momentum, easing the risk deriving from negative fluctuations in the currency exchange market.
Ardian Fullani, the governor of Albania’s central bank, declared during a conference that lending in Lek has increased considerably reflecting the stability of the currency. One reason behind such a trend, according to Fullani, is that Albanians have restored their faith in the banking system, this confirmed by increased deposit levels in the 2nd tier banks.
“Within a year, Albania managed to completely recuperate the public’s trust on the Albanian banking system. Lending has revived. There is also a silver lining. I think lending in (the Albanian) lek has made a comeback, ” a happy Fullani said.
Official data report that 75% of all lending in Albania is in euros. The main reasons behind the fact are the favorable lending interest rates offered in euro. However, after the financial crisis hit the globe, Bank of Albania called for banks to switch toward lending in Lek, in order to minimize risks from currency exchange rates fluctuations and prevent the increase of bad loans. As a matter of fact, one of the biggest impacts the crisis had worldwide was the devaluation of national currencies in many countries. The same blow was suffered by Albania.
In 2009, Lek devalued by 10% toward euro, with a current exchange rate of 1 euro to 135 Lek. In rough terms, that meant that Albanians, who are paid in Lek, but borrow in euros, had to pay 10% more their loans in euro. Naturally, the rising costs resulting in a considerable increase of bad loans as clients found it more and more difficult to pay back their loans. Experts blame the 2nd tier banks for being slow to react despite the warnings issued by BoA.
Finally, banks seem to have learned the lesson. The latest data show that bank’s loan portfolio in foreign currencies has decreased by 0.9% while loans in Lek have increased by 6.5%.
“The level of the deposits of the banking system, its increasing trend and intensity show levels, all three of them show levels of the periods before the crisis,” Fullani said.
Such data is enough to bolster optimism. In addition, Fullani, like the rest, is happy the country will probably experience the biggest economic growth in Europe this year. Yet, other dangers await just behind the corner which seriously threaten the monetary stability of the country. And it comes from the very top in the shape of public spending by the government.