TIRANA, Sept. 1 – Lending hit a one-year low of 0.17 percent in July 2015 despite interest falling for both lek and euro-denominated loans, hinting sluggish demand for new loans by both businesses and households as standards remain tight due to non-performing loans at around 20 percent.
Latest data published by the country’s central bank shows lending to the economy was up by a mere 0.17 percent in the first seven months of this year, but dropped by 1.5 percent or 8.4 billion lek (Euro 59 million) compared to the peak level of about 560 billion lek (Euro 3.93 billion) in December 2014.
Deposits also slowed down to a growth rate of 1.1 percent in July 2015, but were down by 1 percent or 8.8 billion (Euro 62 million) compared to their peak level of 977.4 billion lek (Euro 6.86 billion) in December 2014. The situation is a result of interest rates on deposits dropping to below inflation rate and a shift to investments in the newly established investment funds offering more favorable interest rates.
Bank of Albania data shows average interest rates on lek-denominated loans dropped to 7.88 percent, down from 8.4 percent last June and 8.58 percent in July 2014 as the key interest rate has been kept at a historic low of 2 percent since late January 2015.
Interest rates on Euro-denominated loans, which account for around 60 percent of total credit, dropped to a record low of 5.8 percent last July, down from 6 percent in June 2015 and 6.81 percent in July 2014.
Meanwhile, interest rates on 12-month lek-denominated deposits hit a record low of 1.42 percent in July 2015, down from 1.45 percent last June and 1.9 percent in July 2014.
Interest rate on 12-month euro-denominated deposits also dropped to 0.37 percent, down from 0.39 percent last June and 0.76 percent in July 2014.
Albania’s central bank has kept the key interest rate at a historic low of 2 percent since late January 2015 after 13 consecutive slashes by 0.25 percentage points since August 2011, when the key rate was at 5.25 percent.
Lending to the economy registered a turning point in July 2014 when it overcame a 12-month moderate decline of around 2 percent as the economy struggled with its poorest growth rate in more than a decade and bad loans stood at around a quarter.
After growing by 30 to 50 percent annually in the pre-crisis years, lending grew by an average of 10 percent from 2009 to 2011 but sharply decelerated to 2.36 percent in 2012 and shrank by 1.25 percent in 2013 as bad loans hit a record of 24 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.
