Average interest rates for lek-denominated loans in May 2013 loans slightly rose to 11.05 percent in May 2012, up from 10.83 percent last April but down from 11.28 percent in May 2012, according to BoA data
TIRANA, July 2 – Lending dropped to a historic low in the first five months of this year when it grew by only 0.26 percent driven by a sharp drop in demand for new loans by crisis-hit households and businesses and tight lending standards banks are applying as bad loans stand at a record 24 percent. Bank of Albania data show lending has remained almost unchanged in the first five months of this year growing by a mere 1.4 billion lek (Euro 10 million) year-on-year, and registering the lowest growth rates since the collapse of the notorious pyramid schemes in 1997. At the end of May 2013, the loan stock was at around 555 billion lek, down 0.01 compared to December 2012.
Deposits although decelerating continue preserving a moderate growth trend unveiling consumers’ saving trend and insecurities about their future as they expect harsher times ahead. In the first five months of 2013, deposits grew by 4.7 percent year-on-year with its stock climbing to 940 billion lek. Compared to December 2012, deposits grew by only 1 percent or 10 billion lek.
Meanwhile, interest rates registered a slight decrease for lek-denominated loans positively reflecting the central bank’s cut to the key interest rate in early 2013 to a historic low of 3.75 percent. Average interest rates for lek-denominated loans in May 2013 loans slightly rose to 11.05 percent in May 2012, up from 10.83 percent last April but down from 11.28 percent in May 2012, according to BoA data.
Average interest rates on Euro-denominated loans dropped to 6.72 percent down from 7.05 percent last April and 7.46 percent in May 2012, positively reflecting the latest move by the European Central Bank which in early May 2013 cut its key interest rate by a quarter point to a record low of 0.5 percent as part of efforts to help dig the Eurozone out of recession.
Interest rates on 12 month lek-denominated deposits slightly rose to 5.11 percent in May 2013, up from 5.04 percent in April 2013 but down from 5.7 percent in May 2012. Twelve-month Euro-denominated deposits slightly dropped to 2.40 percent in May 2013, down from 2.41 percent in April 2013 and 3.31 percent in May 2012
Meanwhile, T-bill yields continue registering new record lows. In the latest Bank of Albania auction, 12-month T-bill yields dropped to a historic low of 5.52 percent, down from 5.59 percent in the previous auction and 6.35 percent at the beginning of 2013 when the key interest rate was at 4 percent, considerably reducing the cost of Albania’s public debt currently standing at a record 62 percent of the GDP. Twelve-month treasury bills accounted for around 41 percent or 206 billion lek of Albania’s total domestic debt at the end of the first quarter of 2013, according to Finance Ministry data. Yields on 12-month T-bills have been on a downward trend since March 2012, when they were at a record 7.5 percent.
After maintaining one of the region’s highest credit growth rates during the crisis years, at 1.6 percent in 2012, Albania registered one of the lowest loan growth rates among 14 Central and Eastern Europe (CEE) countries, according to a report by Raiffeisen Research, the research team for the entire Raiffeisen banking group in Austria and Central & Eastern Europe (CEE).
Lending in the national currency lek has gained around 8 percentage points in the past four years and now accounts for one third of the total credit portfolio compared to only a quarter just before the onset of the global financial crisis in 2008. Data published in the latest supervision report lending in the national currency climbed to 35.5 percent at the end of 2012, compared to only 27.4 percent at the end of 2008. As a result, lending in foreign currency, overwhelmingly dominated by Euro-denominated loans, dropped to 64.5 percent at the end of 2012 compared to 72.5 percent at the end of 2008. Although the central bank does not provide any official explanation, it is believed that the shrink of remittances and the crisis in the construction sector are the main reason for a drop in demand for euro-denominated loans. In addition, people receiving income in the national currency have often been advised to borrow in lek to protect themselves from currency exchange risks.
Bad loans at a record 22 percent and falling demand by both businesses and individuals for new loans have considerably affected credit growth which is struggling to preserve its growth rates, registering the lowest rates in the past decade.
Central bank data show deposits grew by around 56 billion lek to 937.4 billion lek in 2012, registering a 6.36 percent increase, sharply lower compared to 11.7 percent in 2011 and 18.5 percent growth rate in 2010, but better compared to 2008 and 2009 at 2.2 percent and 6 percent respectively.
Low inflation pressures have allowed the Bank of Albania to cut the key interest rate by 1.5 percentage points to a historic low of 3.75 percent since Sept. 2011 in an effort to stimulate the economy but the moves have been poorly reflected in lower loan interest rates and an increase in consumption or investments.
