Lending in national currency gains ground

TIRANA, Sept. 23 – Lending in the national currency continued gaining ground in 2013 when it increased its portfolio to a historic high of 37 despite total lending to the economy registering a slight decline. The increase in the lek-denominated loan stock positively reflects the consecutive cuts to the key interest rate by the Bank of Albania which have slightly reduced interest rates on loans denominated in the national currency.
Data published in the 2013 supervisory report by the Bank of Albania show lending in the domestic currency increased its share to 37 percent at the end of 2013, up from 35.5 percent in 2012 and 21.1 percent in 2012.
Data shows around 63 percent of business loans are in foreign currency of which 87.2 percent in euro and 12.8 percent in U.S. dollar. Lending in foreign currency to households accounts for 54 percent, with euro-denominated loans accounting for 97.8 percent and USD loans at 1.7 percent.
Lending in the national currency lek has gained around 10 percentage points in the past four years and now accounts for more than one third of the total credit portfolio compared to only a quarter just before the onset of the global financial crisis in 2008. Lending in the national currency climbed to 37 percent in 2013, up from 35.5 percent at the end of 2012, and only 27.4 percent at the end of 2008.
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.
Bank of Albania data shows lending grew by 0.5 percent year-on-year in July 2014, positively reflecting the easier lending standards banks are applying and a recovery in demand by both households and businesses as average interest rates on loans denominated in the national currency have dropped by around 2 percent.
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.
Differently from loans, 63 percent of which are issued in foreign currency, mainly in Euro, the situation with deposits appears more balanced with lek deposits accounting for 52 percent of total deposits.
Average interest rates on lek-denominated loans dropped to 8.58 percent in July 2014, down from 9.05 percent last June and 10.98 percent in July 2013, positively reflecting the consecutive cuts to the key interest rate by the country’s central bank.
More than half of Albanian businesses consider high interest rates as the key barrier in borrowing from banks, according to a survey carried out by the Bank of Albania. Businesses also consider credit insurance terms, the appropriateness of the credit structure and lack of transparency in the approval and monitoring of loans by banks as factors of average difficulty.