Malaj: Spike in bad loans, clearest sign of crisis

TIRANA, Nov. 22 – Bad loans, which have jumped to a record 18 percent during the past few years, are the clearest indicator of the difficult financial situation, businesses and individuals are facing after the outbreak of the global financial crisis. Arben Malaj, an opposition Socialist Party MP and former Finance Minister says this is the clearest argument of government demagogy of Albania being the only country not to be affected by the global crisis impacts. In an interview for the daily Shekulli published this week, Malaj described banks as the best barometer to measure the health symptoms of each economy. “No consumer or businessmen would like to have the burden of unpaid credits,” said Malaj, adding that economic growth has dropped by over 50 percent from an annual average of 6 to 7 percent for a 10 to 12 period to 2 to 4 percent starting from 2009. What makes matters worse is that lending in foreign currency which accounts for 70 percent of the total. The national currency, lek, has lost around 15 percent during the past 3 years against the Euro, the main currency used in real estate lending. The situation is especially difficult for those persons with income in lek and having to pay loan instalments in euro, which accounts for 60 percent of the total credit. According to Malaj, government unpaid debt to contracted companies engaged in public works has increased, deteriorating the liquidity situation for businesses. “Another factor that should become a lesson is the banks’ neglect to give loans without careful risk assessment for customers borrowing more than their real potential,” says Malaj. Considered as the second major threat to the Albanian economy after the public debt, currently at the legal ceiling of 60 percent of the GDP, bad loans continued their rising trend even in the third quarter of this year while banks’ profits dropped by three times y-o-y during the first nine months of this year. Latest official Bank of Albania data show non-performing loans climbed to 18.03 percent in the third quarter of 2011, up from 16.61 percent in the second quarter and 13.51 in the third quarter of 2010. The spike in bad loans led to banks’ net profits dropping to 1.3 billion lek during the first three quarters of this year compared to around 4 billion lek during the same period last year, according to central bank statistics. Speaking of the 2012 budget, Malaj described it as unrealistic, with overoptimistic forecast in revenues growth, and public investments not oriented toward social groups affected by poverty and unemployment. According to him, cutting budget two to three times a year, as has happened during the past two years, is not only government inability but also a political misuse of the budget especially in election times. The former Finance Minister of the biggest opposition party assures deposits remain safe that recent legal changes adopted in consensus in Parliament have made banks in Albania safer. More than half of deposits owned by only 4% The majority of savings in the Albanian banking system are owned by only a few thousand people, an indicator showing the gap between the poor and the rich is growing wider. This is confirmed by recent data by the Deposit Insurance Agency unveiled in a report at the parliamentary economy committee this week. The report shows 55 percent of the total amount of deposits in Albania belongs to only four percent of depositors. Data published by the Agency show total savings in 2010 reached 635 billion lek (USD 6.35 billion), of which 350 billion lek is owned by only 63,000 people. Meanwhile, the remaining 286 billion lek is owned by 1.4 million people. Silvana Sejko, the director of the Deposit Insurance Agency said 96 percent of individuals have their deposits up to 2.5 million lek, making them fully covered by the agency’s insurance scheme. The Agency says deposits continued their growth in 2010 despite the ongoing financial crisis, increasing by 18 percent, indicating the public’s confidence in the Albanian banking sector. As elsewhere in the region, Albanian banks witnessed substantial panic deposit withdrawals in the face of spillovers from instability of global financial markets, which were compounded by concerns about the health of the Greek banking system in the fall of 2008. Ample liquidity buffers were utilized to meet deposit withdrawals. To boost confidence, deposit insurance limits were raised fivefold to 2.5 million lek (25,000 US dollars), and deposits started to recover from the second half of 2009. Stress tests assessing key risks suggest that the banking system had sufficient buffers to weather the expected downturn.