Banks expects lending standards to ease both for businesses and households in the first quarter of 2014 and interest rates to further drop for lek-denominated loans
TIRANA, Feb. 4 – With non-performing loans standing at a record 25 percent, banks continue applying tight lending standards for both businesses and households. A survey carried out by the country’s central bank shows lending standards in the final quarter of 2013 further tightened for businesses and slightly eased for households.
The situation reflects declining private investments as indirectly unveiled by lower imports of machinery, equipment and spare parts and sluggish domestic consumption shown by the performance of the value added tax.
Specific problems of the sector where businesses operate, the situation with bad loans and the country’s macroeconomic situation were some of the factors which further tightened lending standards for businesses, said the survey.
Lower demand by businesses was affected by current and expected macroeconomic situation, alternative resources of financing, and for the first time the negative impact of floating capital.
Lending standards tightened for both SMEs and big businesses. They tightened for investment loans and slightly eased for loans to finance floating capital.
Meanwhile, demand for new loans by households slightly rose on higher demand for home loans and financing of consumption. Competition and liquidity in the banking sector were among the few factors to positively contribute to the ease of lending standards.
Lending standards for both businesses and households are expected to become easier in the first quarter of 2014 while demand will continue remaining poor, says the central bank survey.
For the first quarter of 2014, banks expect a slight increase in lek-denominated loans and a slight drop in foreign currency lending. Interest rates are expected to slightly drop for lek-denominated loans and remain unchanged for lending in foreign currency. The expectations are in line with the Bank of Albania monetary policy which has lowered the key interest to a historic low of 3 percent in an effort to boost consumption by the moves have only been reflected on lower T-bill yields and interest rates on lek-denominated deposits and only slightly dropped for lek-denominated loans.
In its latest press conference, Bank of Albania governor Ardian Fullani described lending as a global issue and the Achilles’ tendon for every policy maker.
“The Bank of Albania has taken a series of measures to promote lending and in cooperation with the banking system target turning this into a national program. In the coming period, we expect results from stimulating measures from the monetary and macro-prudential policy,” said Fullani.
“The important thing is that the banking system is solid and well-capitalized, performing not only above the region’s average but even above the Eurozone average, despite problems the global economy faces and the dependency from parent banks,” he added.
Latest data published by the country’s central bank show lending shrank by 2.5 percent in the first eleven months of 2013 while deposits grew by only 2.2 percent over the same period.
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.
Perceiving rising risk in loans, banks have shifted into investments in government securities, whose yields have sharply dropped positively reflecting the central bank’s monetary policy and lowering the costs of Albania’s public debt. Yields on 12-month T-bills which are the key instrument of government’s domestic debt have dropped to 3.8 percent down from 6.6 percent in early 2013.
