The ease of lending standards for all kinds of businesses (SMEs and corporations) for the first time since the first quarter of 2011 marks a turning point in the ease of banks’ lending policy.
TIRANA, July 29 – With lending standing at negative growth rates of around 2 percent since last year and bad loans at around a quarter, banks have started easing lending standards and demand for new loans has increased, signaling a recovery in the economy, according to a survey conducted by the central bank.
The latest Bank of Albania survey shows lending standards eased for both businesses and households in the second quarter of 2014.
“The ease of lending standards for all kinds of businesses (SMEs and corporations) for the first time since the first quarter of 2011 marks a turning point in the ease of banks’ lending policy. Banks continued easing lending standards to households for the third quarter in a row both for home purchases and financing of consumption,” says the Bank of Albania survey.
The easier monetary policy followed by the central bank, the liquidity level and competition in the banking system were the key factors easing lending standards for both businesses and households. Meanwhile, households’ financial situation, the performance of bad loans and developments in the real estate market had a negative impact on lending standards.
The rising demand for new loans was a result of the need to finance floating capital by businesses and the financing of consumption for individuals.
For the third quarter of 2014, banks expect lending standards to ease and demand to increase especially for households but are less optimistic about the same prospects for businesses.
Lending standing at moderate negative growth rates of around 2 percent since one year is also a result of banks writing off bad debt from their balance sheets which under new legal changes are being recognized as deductible expenses, says the IMF.
“An explanation for the credit shrink is also the fact that banks have written off bad loans from their balance sheets, which lowers credit artificially. If we remove this element, lending has mainly remained unchanged,” Nadeem Ilahi, the IMF’s mission chief to Albania has told VoA in the local Albanian service.
The IMF chief says Albania’s credit prospects are optimistic at a time when government is continuing with the payment of accumulated bills to private companies.
Latest data published by the Bank of Albania show lending to the economy slightly recovered in May 2014 when it declined by 1.66 percent year-on-year, down from 2.15 percent in April 2014.
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.
Interest rates on loans denominated in the national currency suffered a surprise increase in May 2014 despite the key interest rate being cut to a historic low of 2.5 percent, reflecting the poor transmission of the central bank’s easier monetary policy as bad loans stand at around a quarter.
Bank of Albania data show average interest rates on lek-denominated loans rose to 9.41 percent in May 2014, up from 8.88 percent in April 2014 and a historic low of 7.96 percent in March 2014. However, average interest rates have dropped by 1.64 percent compared to May 2013 when they stood at 11.05 percent.
