TIRANA, May 1- Bank of Albania data show that in March, the monthly weighted average new lending rate of nonfinancial corporations and households was 6.47 percent per annum, marking the lowest level since September 2018. The cheapest is an over five years loan, which has an annual interest rate of 5.86 percent.
The average interest rate on loans in euro was 4.6 percent in March, an increase compared to the previous month, when it was 4.16 percent. Over five years loans in euros have an average interest rate of 4.18 percent. Euro-denominated loans have been preferred to customers due to its lower interest rates, but in recent years the difference between interest rates has decreased and on the other hand, clients are exposed when they receive loans in euros and have their income in lek, because the interest earnings may be lost by the exchange rate fluctuations, and thus a depreciation of the lek would increase the monthly installments of individuals or businesses.
Home loans are cheaper than ever. According to the Bank of Albania, the average monthly housing loan rate was 3.45 percent in March, down from 3.77 percent that was in December 2018. Home loans are preferred by banks as they have resulted in low levels of bad credit, as individuals are inclined to pay installments so as not to lose their properties left as collateral.
In the euro, the average mortgage interest rate in March was 3.04 percent. The most expensive for individuals are overdrafts, which do not have collateral and are mainly given to individuals who receive the salary in the respective bank. Annual interest rates are about 12 percent for this type of loan in both lek and euro.
As the credit situation seems positive, the same can not be said about savings. Interest rates for money bank deposits are at historical minimums. The average time deposit rate in Lek for periods of 1-60 months was 0.82 percent in March, from 0.86 percent in February, and 0.99 percent in January.
For the 12-month savings, the average interest rate in March was only 0.57 percent, which is the annual return on savings. For example, for a deposit of 1 million Lek (8,119 euros), at the end of the year it receives 5,700 lek (46 euros), of which it is deducted a 15 percent as income tax, thus making the net return is 4,845 lek (39 euros). The highest interest you can get from longer-term savings was for the 60-month deposits period for which the return is about 3.3 percent per annum.
For savings in euros, the annual profit is close to zero. The average time deposit rate for periods of 1-60 months in euro was 0.12 percent in March, from 0.14 percent in December. For 12-month deposits, the interest is 0.13 percent, while maximum return can be obtained for 5-year deposits, by about 1 percent.
Bank refusals
Banks refuse the application to one in ten people who want to take home loans. During the second half of 2018 (excluding December), banks have considered a total of 49,426 loan applications, of which around 10 percent belong to the “Enterprise” sector; respectively there were 2,931 applications from “small and medium enterprises” and 1,958 applications from “other enterprises.” The rest 90 percent of the applications belong to the “individuals” sector, nominally with 44,537 applications.
According to the Bank of Albania data, 11 percent of the total of applications reviewed during the period were rejected by the banks, while 87 percent were approved and 2 percent were in the process of being reviewed. The refusal rate of 11 percent has increased compared to the previous six months and compared to the previous year, by deviating the downward trend of 2016-2017. The total number of received applications has also decreased by 3.7 percent compared to the previous half, coming from both the “enterprises” segment (8-month drop by 8.7 percent) and the segment of “individuals” (six-month drop by 1.6 percent). Therefore in annual terms, compared to the period from 1 June to 30 November 2017, the total number of applications under consideration almost did not change (increase by only 0.2 percent), where within the categories was observed the increase in the number of applications of individuals by 2.6 percent and the decline in the number of applications by enterprises by 17.4 percent.
The increase of the rejection rate during the period is more apparent for the “individuals” and “other enterprises” categories, while for “small and medium enterprises” this rate has been downward. Analyzing the refusal rate of banks divided into domestic and foreign banks, it turns out that in recent years, this rate for domestic banks has been consistently lower compared to foreign banks for all categories of clients.
For the second half of 2018, the total refusal rate of applications for loans from foreign banks (to total applications) remained unchanged at 14 percent compared to a previous six months, and somewhat higher than one year before. According to customer segments, these banks have been more prone to refuse loan applications to “individuals” and “other enterprises,” while they have been more receptive to “small and medium enterprises.”
On the other hand, the refusal rates of domestic banks increased during the period against all segments of customers, but more pronounced against the “individuals” segment. In general, the above analysis may conclude that the number of applications reviewed by banks in 2018 is somewhat lower by 2.2 percent than in the previous year. Bank lending preference has generally dropped against “individuals” and “big enterprises,” and growing to “other enterprises.”
Businesses uninterested to loans
About 49 percent of companies which responded to a Bank of Albania survey stated that “there is no opportunity” to seek a bank loan in the first half of 2019. The loan cost continues to be considered as the main element that hinders the presuming of a bank loan, especially for small and medium-sized enterprises. Following the cost of credit, the cost of meeting the bank’s requirements continues to be a considerable difficulty, followed by the assessment of the conditions for loan guarantees and the uncertainty of bank requirements or bureaucratic procedures.
Compared to the previous survey, the three groups of enterprises are increasingly evaluating the above-mentioned limiting elements in obtaining a loan. Firms’ demand for loans continues to be low, with only 7.7 percent claiming to have applied for funding over the last six months, and this weight dropped by 3 percentage points compared to the previous survey. Analyzing this indicator according to the size of enterprises, it turns out that the largest share of the loan application continues to be large enterprises at 9.5 percent. Compared with the previous six months, a decline in the demand for loans from the three groups of enterprises is observed.
The difficulty of the borrowing process by banks for the second half of 2018 remains below the “normal” and “difficult” level for the three groups of enterprises. Compared to the first half of 2018, the level of difficulty results in mitigation for small and large enterprises, but somewhat rising for medium-sized enterprises. The ratio of the importance of the relationship with the banks continued to be evaluated between the levels “important” and “necessary.” The performance of this index during the period indicates a significant increase in the importance of the relationship with banks for the performance of the activity of the three groups of enterprises.
