After striving to remain at positive growth rates in the first half of 2013, when it grew by less than one percent, lending registered negative growth rates in the first eight months of this year when it dropped by 1.3 percent compared to the same period last year
TIRANA, Oct.1 – With bad loans at a record 24.5 percent or around more than one billion Euros, lending has dropped to historic lows during the first eight months of this year, registering negative growth rates for the first time in more than a decade.
After striving to remain at positive growth rates in the first half of 2013, when it grew by less than one percent, lending registered negative growth rates in the first eight months of this year when it dropped by 1.3 percent compared to the same period last year. Total lending in August 2013 dropped to 545 billion lek, down 7 billion lek (Euro 48.5 million) compared to August 2012.
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 as bad loans hit more than 22 percent.
Meanwhile, deposits continue their downward trend, unveiling the crisis in Albania as remittances hit record lows and saving becomes more and more difficult. In the first eight months of this year deposits grew by around 2 percent to a total of 947 billion, up only 18 billion lek (Euro 125 million) compared to August 2012. Central bank data show deposits grew by around 193 billion lek (Euro 1.35 bln) to 881.3 billion lek in 2011, registering an 11.7 percent increase, lower compared to the 18.5 percent growth rate in 2010, but better compared to 2008 and 2009 at 2.2 percent and 6 percent respectively.
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.
Lending in the national currency lek has gained around 8 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. Data published in the latest BoA supervision report show 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.
IMF on credit
Revival of credit will depend on the repayment of arrears and unpaid bills, and clean up of bank and corporate balance sheets, says the IMF in its latest report on Albania.
“A strong rebound in credit would be contingent on progress in restructuring troubled corporate balance sheets. The high NPLs are indicative of the state of disrepair of corporate balance sheets, and partly explain banks’ high risk aversion in lending; credit would continue to be weak till there is improvement on this front. The mission welcomes the authorities’ recent efforts to prevent delays in court cases and facilitate collateral execution, but encourages them to pursue additional measures to support the cleanup of bank balance sheets, including loan restructurings, removal of tax distortions, and facilitating out-of-court settlement,” said an IMF mission after concluding a visit to Albania in the past few days.
Deposit interest rates significantly drop, loan rates unchanged
While loan interest rates have in general remained unchanged during the past two years of the easy monetary policy the Bank of Albania has followed, interest rates on deposits have significantly dropped. Since September 2011, the Bank of Albania has cut the key interest rate by 1.75 percent to 3.5 percent in several consecutive interventions, but the moves have only been reflected on lower T-bill yields and interest rates for lek-denominated deposits.
In August 2013, interest rates on 12-month lek-denominated deposits dropped to 3.83 percent, down from 4.26 percent in July 2013 and 5.06 percent in August 2012. In September 2011, when the key interest rate was cut by 0.25 percent to 5 percent, interest rates on 12-month lek-denominated deposits stood at 5.92 percent, and have been on a downward trend since then.
Meanwhile, average interest rates on lek-denominated loans have remained unchanged during the past two years, reflecting the failure of the consecutive cuts to the key interest rates in the past two years. Bank of Albania data show average interest rates on lek-denominated loans dropped to 9.44 percent in August 2013, down from 10.93 percent in July 2013 and 11.11 percent in August 2012. Interest rates on lek-denominated loans in September 2011 stood at 11.07 percent, only 0.14 percent lower compared to July 2013.
In its monetary policy report for the second quarter of 2013, the Bank of Albania says the failure of the monetary policy to lower loan interest rates is a result of low demand for new loans and specific problems of certain sectors of the economy as well as tighter lending standards imposed by parent Eurozone-based banking groups.
With lending striving to remain at positive growth rate and banks seeing government securities as one of their few investment opportunities, T-bill yields continue registering new record lows. 12-month T-bill yields have dropped to a historic low of 4.04 percent, down from 4.34 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.
Experts explain the declining trend in T-bill yields with more active participation by commercial banks which have turned to investments in government securities due to poor demand for new loans as non-performing loans have reached a record 24.4 percent. The latest cut to the key interest rate to a historic low of 3.5 percent has also had a positive impact.
