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, according to a central bank supervision report
TIRANA, June 18 – 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.
The private sector accounts for around 70 percent of loans, followed by individuals with 26 percent, and the public sector at 4.4 percent. Non-performing loans rose by 3.7 percentage points to 22.5 percent at the end of 2012 with the rate standing at 25.9 percent among businesses and at 17.2 percent among individuals.
Lending dropped to a historic low in the first four months of this year when it grew by only 0.9 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 four months of this year growing by a mere 5 billion lek (Euro 35 million) year-on-year, and registering the lowest growth rates since the collapse of the notorious pyramid schemes in 1997. At the end of April 2013, the loan stock was at around 555 billion lek.
Meanwhile, deposits although decelerating continue preserving a moderate growth trend unveiling consumers’ saving trend and insecurities about their future expecting harsher times ahead. In the first four months of 2013 deposits grew by 5.85 percent year-on-year with its stock climbing to 943 billion lek.
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 April 2013 dropped to 10.83 percent, down from 11.4 percent in March 2013 and 11.2 percent in April 2012, according to BoA data.
Average interest rates on Euro-denominated loans rose by 0.2 percent to 7.05 percent compared to last March but were down by 0.5 percent by 0.23 percent compared to April 2012. Interest rates on 12 month lek-denominated deposits dropped to 5.04 percent in April 2013 down from 5.57 percent a year ago. 12-month Euro deposit interest rates also dropped to 2.41 percent down from 3.25 percent a year ago.
Meanwhile, T-bill yields continue registering new record lows. In the latest Bank of Albania auction, 12-month T-bill yields dropped to 5.73 percent, down from 5.9 percent in the previous auction and 6.35 percent at the beginning of 2013 when the key interest rate was at 4 percent, slightly 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).
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.
