TIRANA, July 30 – With bad loans at a record 24 percent, lending continues remaining at historic lows hardly managing to preserve positive growth rates of less than 1 percent while deposits are growing at a slightly higher rate. Central bank data published this week show lending rose by 0.85 percent year-on-year in the first half of this year while deposits were up by 3.8 percent.
The loan growth rate for the first half of the year marks the worst result since the 1997 turmoil triggered by the collapse of the so-called pyramid schemes. Experts say the situation is driven by a sharp drop in demand for new loans by crisis-hit households and businesses and tight lending standards banks are applying as bad loans stand at a record 24 percent. The situation in June 2013 slightly improved compared to the first five months of the year when lending was up only 0.26 percent. At the end of June 2013, the loan stock was at around 557 billion lek, up 0.5 percent compared to December 2012.
Deposits although decelerating continue preserving a moderate growth trend unveiling consumers’ saving trend and insecurities about their future as they expect harsher times ahead. In the first six months of 2013, deposits grew by 3.8 percent year-on-year with its stock climbing to around 940 billion lek. Compared to December 2012, deposits grew by only 1 percent or 8.8 billion lek.
With bad loans standing at a record 24 percent, banks continued applying tight standards even in the second quarter of 2013 while demand for new loans remained sluggish by both businesses and households, according to a central bank survey. Data show lending standards were eased for households but further tightened for businesses on economic and business concerns. Lending dropped to a historic low in the first five months of this year when it grew by only 0.26 percent driven by a sharp drop in demand for new loans by crisis-hit households and businesses and tight lending standards banks are applying as bad loans stand at a record 24 percent.
Interest rates
With the key interest rate standing at a historic low of 3.75 percent, the positive impacts of the easy monetary policy the central bank has been following since around two years have mostly been reflected on lower T-bill yields on government’s domestic debt. The situation is also a result of lending striving to maintain positive growth rates and banks investing in government securities as an alternative to low demand for loans.
Interest rates have registered a slight decrease for lek-denominated loans positively reflecting the central bank’s cut to the key interest rate in early 2013 to a historic low of 3.75 percent. Average interest rates for lek-denominated loans in June 2013 loans slightly dropped to 10.73 percent, down from 11.05 percent last May and 11.39 percent in June 2012, according to BoA data.
Average interest rates on Euro-denominated loans slightly rose to 7.08 percent, up from 6.72 percent last May and 7.03 percent in June 2012, ending the positive impacts from the latest move by the European Central Bank which in early May 2013 cut its key interest rate by a quarter point to a record low of 0.5 percent as part of efforts to help dig the Eurozone out of recession.
Interest rates on 12 month lek-denominated deposits slightly dropped to 4.59 percent in June 2013, down from 5.11 percent in May 2013 and 5.5 percent in June 2012. Twelve-month Euro-denominated deposits slightly dropped to 2.27 percent in June 2013, down from 2.40 percent in May 2013 and 3.24 percent in June 2012.
Albania’s T-bill yields continue registering new record lows, positively reflecting the consecutive cuts to the key interest rates but also influenced by rising investments by commercial banks in government securities as lending strives to remain at positive growth rates. In the latest Bank of Albania auction this week, 12-month T-bill yields dropped to a historic low of 5.11 percent, down from 5.35 percent in the previous auction and 6.35 percent at the beginning of 2013 when the key interest rate was at 4 percent, considerably reducing the cost of Albania’s public debt currently standing at a record 62 percent of the GDP.
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.
Lending in the national currency lek has gained around 8 percentage points in the past four years and now accounts for one third of the total credit portfolio compared to only a quarter just before the onset of the global financial crisis in 2008. Data published in the latest supervision report lending in the national currency climbed to 35.5 percent at the end of 2012, compared to only 27.4 percent at the end of 2008.
