Lending recovers to 2.2 percent, deposits slow down to 1.5%

Average interest rates on lek-denominated loans dropped to 8.43 percent in August 2014, down from 8.58 percent last July and 9.48 percent in August 2013, positively reflecting the consecutive cuts to the key interest rate by the country’s central bank.
TIRANA, Oct. 1 – Lending further recovered to 2.2 percent year-on-year in August 2014 after overcoming a 12-month moderate decline only last July, positively reflecting the easier lending standards are applying despite non-performing loans standing at around a quarter. The recovery also reflects the moderate decline in interest rates, especially on loans denominated in the national currency as the key interest rate stands at a historic low of 2.5 percent.
Meanwhile, deposits slowed down to 1.5 percent as interest rates stand at a record low, even lower than the annual inflation rate making investments in deposits one of the least attractive opportunities.
The slowdown in deposits is also a result of sharp cuts in interest rates and more favourable interest rates in the emerging investments funds.
“While these funds have helped diversify the ownership of government securities, they are inadequately supervised and regulated, invest mostly in longer-dated securities and their clients appear to consider these funds as substitutes for bank accounts,” warns the IMF in its latest report.
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.
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.
Average interest rates on lek-denominated loans dropped to 8.43 percent in August 2014, down from 8.58 percent last July and 9.48 percent in August 2013, positively reflecting the consecutive cuts to the key interest rate by the country’s central bank.
Average interest rates on Euro-denominated loans dropped to 6.51 in August 2014, down from 6.81 percent last July and 6.98 percent in August 2013.
Interest rates on 12-months lek-denominated deposits dropped to a record low of 1.83 percent in August 2014, down from 1.9 percent last July and a historic low of 1.76 percent in June 2014. In August 2013, the interest rate on 12-month lek deposits stood at 3.83 percent compared to 5 percent in August 2012.
Interest rates on 12-month Euro-denominated deposits dropped to a historic low of 0.58 in August 2014, down from 0.76 percent last July and 1.86 percent in August 2013.
At an average of 1.8 percent for the first eight months of this year, the inflation rate continued remaining below the central bank’s lower limit of the target range of 2 to 4 percent, a situation reflecting sluggish internal demand which is the key driver of Albania’s growth.
Since September 2011, the country’s central bank has cut the key interest rate in eleven consecutive moves by 0.25 percent each time to a historic low of 2.5 percent, but the moves have mostly been reflected on lower interest rates for lek-denominated deposits and T-bill yields, which have almost halved during the past year, while interest rates on lek-denominated loans have registered only a slight decline.