Lending to businesses up 15.6% y-o-y in July

TIRANA, Sept. 7 – Lending to businesses slightly recovered in July 2011 when it rose 15.6 percent year-on-year but only 1.3 percent compared to the previous month. Data published by the Bank of Albania show new business loans rose by 47.8 billion lek (Euro 341.4 million) y-o-y and 4.8 billion lek compared to June 2011. Albania’s banking system, composed of 16 commercial banks financially supported all sectors of the economy with “trade, repair of cars and household equipment” topping the list at 34 percent, followed by construction and the processing industry at 18.8 percent and 15.4 percent respectively. The majority of around 64 percent of business loans are granted in Euro, putting Albanian consumers at risk of facing negative currency exchange risks especially those with revenues in the Albanian currency lek. Lending in lek for businesses accounts for only 28 percent of the total credit for businesses. Around 8 percent of credit portfolio for businesses is in the US dollar. Total lending to both businesses and individuals grew by 10.5 percent during the first half of this year, confirming the Bank of Albania survey results about the tight lending standards banks are applying as bad loans are registering record high levels. Around 87 of credit in Euro is taken to invest in real estate. This is explained by prices in Albania’s construction industry which are set in Euro since years now. Data show that Tirana holds around 74 percent of the total loan portfolio for businesses Bank of Albania governor Ardian Fullani says low demand by businesses is the key problem for low lending levels. Despite the risk bad loans pose currently at around 17 percent of the total, Albania’s central bank describes the Albanian banking system as safe which is confirmed by both the credit and deposit growth. Although not at the pre-crisis levels of 30 to 50 percent, new loans and deposits grew by more than 10 percent year-on-year during the first half of this year. The latest Bank of Albania survey shows lending standards for businesses became tighter in the second quarter of this year and are expected to further tighten in the third quarter.