While average interest rates in May 2012 stood at 11.3 percent, interest rates reach as high as 14.5 percent for 1 to 3-year loans in lek
TIRANA, July 2 – High interest rates, tight lending standards and a sharp decrease in demand are the key reasons lending is failing to recover this year. Although having lowered the key interest rate by 1 percentage point to a historical record low of 4.25 percent since Sept 2011, the Bank of Albania interventions in the monetary policy have been poorly reflected in lowering interest rates for loans in the domestic currency lek, and T-bill yields. Latest data show average interest rates for lek-denominated loans slightly rose to 11.3 percent in May 2012, up from 11.1 percent last April and 12 percent in March when the central bank lowered the key interest by 0.25 percent to 4.25 percent. While average interest rates in May 2012 stood at 11.3 percent, interest rates reach as high as 14.5 percent for 1 to 3-year loans in lek.
Meanwhile, interest rates for lek-denominated deposits slightly rose to 5.7 percent in May 2012, up from 5.6 percent in April 2012 and 5.9 percent in Sept. 11 when BoA started cutting the key rate.
Interest rates for Euro-denominated loans in May 2012 rose to 7.5 percent, up from 7.3 percent in April 2012 but remained unchanged compared to Sept. 2011. The European central bank has kept the key interest rate unchanged at 1 percent since December 2011.
Interest rates on Euro-denominated deposits remained unchanged at 3.3 percent in May 2012, having increased by 0.3 percent year-on-year.
Bank of Albania Governor Ardian Fullani has said the central bank could further review the monetary policy following government’s reconfirmation to continue the fiscal consolidation with the expected mid-year budget cuts.
Governor Fullani has admitted the key interest rate cuts have failed to provide lower interest rates for lek-denominated loans or T-bills yields. “Interest rates for lek-denominated loans have not fully reacted to facilitating signals, reflecting an increase in premium risks for credit to special branches of the economy,” said Fullani earlier.
The key interest rate cut have had no impact at all in lowering T-bill yields or boosting lending. Twelve-month T-bill yields have also been on upward trend since Dec. 2011 climbing from 6.95 percent to 7.35 percent in June 2012.
Both lending and deposit growth rates stood at the same levels of around 11 percent during the first quarter of 2012, revealing an ongoing saving trend and hesitation about new investments as domestic consumption fails to recover. . In the 2009-2011 period, lending grew at moderate rates of 10 to 13 percent annually compared to the pre-crisis levels of 30 to 50 percent.
Banks’ profits trebled in the first quarter of 2012 despite bad loans hitting a historical record high of 20 percent. Latest Bank of Albania data show the 16 commercial banks operating in Albania, which are overwhelmingly foreign-owned, registered a net profit of 1.95 billion lek (Euro 13.7 million) in the first quarter of 2012, up from only 668 million lek (Euro 4.7 million) in the first quarter of 2011. Data show this is the best first quarter performance since 2008 when banks’ profits registered 2.2 billion lek.
