Expectations for the third quarter of 2012 are rather more optimistic with banks keeping lending standards unchanged for businesses and slightly easing them for individuals
TIRANA, July 17 – Lending standards remained tight even in the second quarter of 2012 despite demand for new loans continuing its downward trend. The latest central bank survey shows lending standards were slightly tightened for SMEs mainly to finance investment, while big enterprises and individuals had standards unchanged.
Expectations for the third quarter of 2012 are rather more optimistic with banks keeping lending standards unchanged for businesses and slightly easing them for individuals.
“Net demand for credit is estimated to have dropped again in the second quarter of 2012, although to a lower extent, both for businesses and individuals. The negative net balance was registered in demand by SMEs for loans for investment purposes and the financing of households’ consumption,” says the survey.
Banking experts expect an increase in the approval of loans in lek and a drop in those in foreign currency for the third quarter of 2012. Interest rates are only slightly expected to drop for loans in foreign currency, which account for around 70 percent of total lending.
Specific problems in the sector where businesses operate, the situation with bad loans, and the general macroeconomic situation are the key factors contributing to tougher lending standards for businesses. Apart from the non-performing loan indicator, individuals’ financial situation and developments in the real estate market also affected the tighter standards for individuals, according to the survey.
Demand for collateral remains the key condition of the banks tighter policies while the liquidity situation and Bank of Albania key interest rate cuts had minor impacts in easing lending conditions.
Total credit to both businesses and individuals decelerated to 9.5 percent in May 2012 due to tighter standards applied by banks and low demand.
Bank of Albania data show total credit to businesses in May 2012 decelerated by 15 percent y-o-y, down from 18 percent last December. Credit to individuals continues registering negative growth rates for this year. In May 2012 loans to individuals shrank by 3.5 percent year-on-year. Lending in Euro which accounts for a majority of 54 percent now registers the lowest level since Jan. 2009. Credit for real estate, mainly apartments shrank by 7 percent year-on-year but accounts for 87 percent of total portfolio of 76 billion lek in credit to individuals.
Bad loans and delays in collateral execution are the key reason for lending standards becoming tighter despite demand having considerably dropped by both individuals and businesses as domestic consumption remains at low levels and the market seems to have reached a saturation point.
At around 19 percent in 2011, (20 percent in early 2012) Albania’s non-performing loans are among the highest in Central, Eastern and Southeastern Europe (CESEE), becoming a drag on economic growth, according to a recent report issued by the European Bank Coordination Initiative.
