Detailed statistics show Tirana holds the overwhelming majority of 279 billion lek, or 75.6 percent of total lending to businesses in Albania
TIRANA, Dec. 7 – Lending to businesses continued to grow at satisfactory double digit rates even in the third quarter of this year despite the economic slowdown, banks tightening standards because of rising bad loan portfolios, and companies becoming more reluctant to borrow as consumption stands at low levels. The latest central bank data show new loans to businesses rose by 59 billion lek, (Euro 421 million; USD 590 million,) or 19 percent in the third quarter of 2011 y-o-y. Compared to the second quarter of 2011, new loans registered an increase of 17.3 billion lek or 4.9 percent.
Bank of Albania data show total Bank of Albania data show total lending to businesses stood at 369 billion lek at the end of September 2011, compared to 351.7 billion lek in June 2011 and 310 billion lek in September 2010.
Detailed statistics show Tirana, where a quarter of the country’s total 3.5 million population lives and the majority of businesses operate, holds the overwhelming majority of 279 billion lek, or 75.6 percent of total lending to businesses in Albania. Most credit is taken to finance the “trade, and repair of cars and household equipment” accounting for around 92 billion lek or 33 percent of total credit to businesses in Tirana. The construction sector and the processing industry with a 19 percent and 14 percent share respectively.
Lending to businesses in other districts stands at low levels, with Durres coming second at a total of around 28 billion lek or 7.6 percent of total credit nationwide. The southern coastal district of Vlora ranks third with 10.4 billion lek or 2.8 percent of total lending to businesses followed by the southwestern district of Fier holding a 2.6 percent share.
The distribution of credit in these districts is similar to Tirana with the “trade, and repair of cars and household equipment” category and construction sector benefitting the majority of loans.
The rising bad loan portfolio, currently at around 18 percent, and the macroeconomic situation with public debt as the most problematic indicator at around the legal ceiling of 60 percent of the GDP, were the main two factors contributing to the tightening of lending standards for both businesses and individuals during the third quarter of 2011, according to findings revealed in the latest Bank of Albania survey. Low demand for loans also contributed to the tight lending standards. Banking experts expect lending standards to remain tight even in the final quarter of 2011 both for businesses and individuals. For the final quarter of 2011, banking experts expect a slight increase for lending in the national currency, lek, and a decrease in lending in foreign currency. Experts expect lending rates to drop for both lek and foreign currency in the fourth quarter of 2011. Lending in foreign currency especially Euro, continues to account for 70 percent of the total portfolio in Albania, mainly due to the difference in interest rates, revenues and purchases made in Euro, especially in the construction sector. The latest Bank of Albania move to lower the key interest rate for lek by another 0.25 percent to 4.75 percent is expected to a give a boost to lending in lek, which after the 2009 global financial crisis has been at slightly more than 10 percent compared to the pre-crisis levels of 30 to 50 percent.
Total credit to the economy slightly accelerated to 14.6 percent year-on-year in Sept. 2011, up from 12.7 percent in the previous month. Meanwhile, total deposits in Sept. 2011 continued their rising trend, although growth slowed down compared to the previous month. Central bank data show deposits in Sept. grew by 100 billion lek or 13.3% y-o-y.
The continuing growing trend in deposits has been described as a sign of confidence in the Albanian banking system but at the same time a sign of consumers’ saving trend considering the small level of domestic investments and consumption. Differently from loans, 70 percent of which are issued in foreign currency, mainly Euro, the situation with deposits appears more balanced with lek deposits accounting for 51 percent of total deposits. A recently published Raiffeisen International report has singled out Albania’s banking sector as one of the few in the South-East European region that could register double-digit loan and asset growth for the 2011-2015 period. “The smaller Albanian banking sector seems to be the only banking sector in the SEE that might offer double-digit loan and asset growth rates over the forecast horizon (2011-15). Moreover, the need for additional deposit collection is limited, given a loan-to-deposit ratio of 60 percent in Albania,” says Raiffeisen Research in its latest report covering 14 banking sector markets from the central and Eastern European Countries.
