TIRANA, July 28 – A joint initiative by the country’s central bank and the World Bank to reduce the high level of non-performing loans in Albania has proved inefficient as the country’s big borrowers who have defaulted or are on the verge of defaulting on their loans are unwilling to enter into negotiations with their creditors.
An annual report by the country’s central bank shows the initiative with the World Bank’s Financial Sector Advisory Center (FinSAC) provided a solution to only a limited number of borrowers.
“The initiative started being implemented in 2014, but the main issue the banks faced was the unwillingness of the borrowers to become part of the initiative,” says the central bank in its 2014 supervisory report.
“The borrowers refused exchanging information with the banks they are exposed to, giving a priority to their short-term interest over a long-term vision which would be of more interest to them,” said the central bank.
FinSAC has been collaborating with the Bank of Albania (BoA) since 2013 to identify and implement measures that will facilitate the reduction of the non-performing loans (NPLs) stock in the Albanian banking sector, and encourage the resumption of lending to viable companies and households.
The priority has been the effective enforcement of creditors’ rights, while promoting the return of operationally viable borrowers to sustainable debt servicing capabilities, and hence to new sustainable borrowing.
By the end of 2014, a first sample of 13 defaulted corporate obligors, representing approximately
15 percent of total NPLs in the system, had been reviewed through the pilot program. Approximately one third coming out with restructuring plans were deemed to have a high chance of success, one-third were deemed “worth restructuring” but there was some uncertainty about their prospects, and approximately one third were deemed unfit for restructuring and sent to liquidation. A further sample of 25 corporates were reviewed by the BoA, FinSAC and the external consultants in March – April 2015, representing another 10 percent of the stock of NPLs.
Data shows non-performing loans for the business sector, which accounts for around three-quarters of total loans, was at 26 percent at the end of 2014, compared to 24 percent for households.
The long-ailing construction sector which has been continuously shrinking since the 2008 global crises, and accounts for 10 percent of businesses loans has a non-performing loans level of 42 percent. “Trade, repair of cars and household equipment” which holds the majority 25 percent of business loans has a NPL level of 31 percent.
The World Bank expects the level of NPLs, currently at around 23 percent to further drop in 2015 due to the ongoing repayment of government arrears and the write-off of bad debts from banks’ balance sheets.
“During 2015, banks are expected to write off considerable chunks of old, dated NPLs to comply with BoA rules that require mandatory write-offs of loans classified in the “lost” category for more than three years. An economic recovery, clearance of arrears, and reform of the bankruptcy law would help facilitate private balance sheet restructuring and revive loan demand.”
