TIRANA, Nov. 6 – Hit by a sharp drop in loans to the ailing construction sector, lending to businesses shrank by 2.4 percent year-on-year in third quarter of this year, according to central bank data. Meanwhile, lending to households slightly rose by 0.5 percent in the third quarter of the year but was down by 3.4 percent compared to the third quarter of 2011.
The situation for businesses was first of all affected by a sharp decline in lending to the crisis-hit construction sector which dropped by sharp 25 percent to 54 billion lek in September 2013 year-on-year, registering similar levels to September 2008 just before the onset of the global crisis.
Detailed data show “trade, repair of cars and household equipment” holds the majority share of lending with 134 billion lek or 34 percent of total lending to businesses. Next come the processing industry with 57 billion lek and “production, distribution of electricity, gas and water” with 51 billion lek.
Despite accounting for almost 20 percent of the GDP and employing half of the country’s population, the agriculture sector is one of the least financed sectors by commercial banks. Total lending to the agriculture sector at the end of September 2013 was at 5.8 billion lek, up 10 percent compared to a year ago but accounting for only 1.5 percent of total lending to businesses.
Rising difficulty in paying off
Bad loans in the construction, manufacturing and trade industries have reached alarming levels with one out of two debtor enterprises failing to pay off for at least three months which is the deadline classifying loans as non-performing, warns the Bank of Albania. In its financial stability report for the first half of 2013, the central bank says bad loans in the construction sector rose to a record 53.2 percent in the first half of this year compared to 32.3 percent at the end of 2012. The processing industry also saw its bad loan portfolio increase to 44.6 percent compared to 27.7 percent at the end of 2012. Meanwhile, bad loans for businesses operating in the trade sector rose to 46.2 percent, compared to 29.2 percent at the end of 2012.
Bad loans have also sharply risen to around 38 percent in the agriculture sector, from around 22 percent at the end of 2012.
The Bank of Albania warns the credit risk represents the main challenge in the banking system activity. “The presence of a high stock of non-performing loans in banks’ balance sheets increases the cost of the banks’ activity, limits their financial intermediation ability and requires the use of additional and non-efficient capacities.”
More recently, the first transactions enabling the transfer of non-performing loans from banks to non-bank financial operators who act on their collection have been registered.
At the end of the first half of 2013, non-performing loans for households rose to 18.44 percent, increasing by 1.5 percentage points compared to the end of 2012 and 2 percentage points compared to the end of first half of 2012.
Non-performing loans for businesses rose to 26.49 percent at the end of the first half of 2013 compared to 22.77 during the first half of last year.
With lending having plunged to negative growth rates, non-performing loans which are considered the second major threat to the Albanian economy after public debt, rose to 24.34 percent in the third quarter of 2013, up from 22.7 percent during the third quarter in 2012.
