Lending, deposit interest rate slow down

TIRANA, March 13 – Consecutive cuts to the key interest rate in an effort to boost lending and stimulate investments, have finally had positive impacts on lending rates which have dropped by an average of 1.45 percent in the course of one year. However, the lower interest rates seem to be inefficient at a time when demand by both consumers and businesses remains sluggish and banks have considerably tightened lending standards as bad loans soar.
Latest Bank of Albania data show average interest rates on lek-denominated loans dropped to 9.88 percent in January 2013, down from 10.79 percent in the previous months and 11.32 percent in January 2012.
Lending in euro denominated loans also dropped to 6.13 percent in January 2013 down from 7.04 percent in Dec. 2012 and 7.32 percent in Jan. 2012.
Interest rates on both lek and euro-denominated loans have also dropped following the consecutive cuts to the key interest rate by the Albanian and European central bank. Interest rates on 12-month deposits dropped to 5.07 percent in Jan. 2013, down from 5.17 last December and 5.8 percent in Jan. 2012. Euro denominated deposits also dropped to 2.74 percent, down from 3.3 percent in Jan. 2012.
The central bank’s consecutive cuts in have also had a positive impact on the cost of domestic government debt with T-bill yields being on a constant downward trend.
12 month T-bill yields dropped to 6.21 percent down from 6.34 percent in the previous auction
6-month T-bill yields dropped to 5.98 percent, down from 6 percent previously. The Albanian government sold 14.6 billion lek in 12-month and 6-month T-bills in this week’s auction.
Albania’s central bank has made a new cut to the key interest rate taking it to a historic low of 3.75 percent in an effort to give a new impetus to the country’s ailing economy suffering crisis impacts from the Eurozone partners, and problems at home with sluggish consumption, high levels of public debt, and a sharp drop in lending as bad loans have reached a record 22 percent. Governor Ardian Fullani says the move is aimed at increasing the sluggish consumption and investments by easing lending in the national currency.
While domestic consumption and investments remain sluggish preventing the country’s economic recovery, Albanians continue depositing considerable amounts in banks uncertain about their futures and fearing a possible escalation of the crisis. Meanwhile, lending has almost frozen after growing by an average of 10 percent in the past three years compared to the pre-crisis levels of 30 to 50 percent.
Central bank data show deposits grew by 6.3 percent in 2012 while lending decelerated to 2.3 percent.