TIRANA, June 2 – With non-performing loans standing at around a quarter, the easier monetary policy the country’s central bank has been following has had a small impact on boosting lending in the national currency and accelerating sluggish investments and consumption.
Tight lending standards applied by the 16 overwhelmingly foreign-owned commercial banks and poor demand by both businesses and households as the economy has been struggling with sluggish growth rates of 1 to 2 percent since 2012 are considered the key barriers to a boost in lending.
Latest Bank of Albania data shows lending slightly accelerated to 2.5 percent year-on-year in April 2015, but was down by 0.6 percent or 3.3 billion lek (€23 mln) compared to last December.
Despite a significant drop since the pre-crisis years, interest rates offered by banks are still considered high by a considerably number of businesses and households which is also unveiled by the high level of informal borrowing.
Interest rates on lek-denominated loans rose to an average of 8.87 percent in April 2015, up from 8.25 percent last March, a historic low of 7.75 percent last December and 8.88 percent in April 2014 when the key interest rate was at 2.75 percent compared to a an all-time low of 2 percent currently.
Bank of Albania governor Gent Sejko says lending continues remaining sluggish as a result of tight lending standards applied by commercial banks despite the banking system remaining solid, liquid and well-capitalized.
“Lending is expected to undergo only a slight improvement in 2015 but the Bank of Albania expects the banking system to play a more active role in lending and will take the necessary measures for its promotion,” Sejko has recently said.
In fact, the situation with lending in Albania is rather strange as the banking system continues remaining liquid, well-capitalized and profitable and the bank credit is largely funded by local deposits with the loan-to-deposit ratio estimated at around 55 percent.
Banks’ profits reached a historic high of 11.2 billion lek (Euro 78.4 million) in 2014 as bad loans registered a slight decrease and provisioning against loss more than halved. Banks’ net profits also grew to around 5.9 billion lek (Euro 41 mln) in the first quarter of this year when non-performing loans slightly dropped to 22.69 percent.
The cut in euro-denominated loan interest rates has been sharper in the past year as the European Central Bank has kept rates at a historic low of 0.05 percent since September 2014.
Central bank data show interest rates on Euro-denominated loans which account for around 60 percent of total credit, dropped to a historic low of 5.87 percent in April 2015, down from 6.28 percent last March and 7.03 percent a year ago.
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.
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.
