The construction sector leads the NPL portfolio with 29.6 percent, followed by trade with 21.3 percent and agriculture with 13.6 percent, according to central bank data
TIRANA, April 30 – Albania’s central bank and the Association of Banks have prepared a draft law on the acceleration of procedures for the execution of collateral, a key barrier which has directly influenced on rising bad loans and falling banks’ profits as a result. The draft law which has already been submitted to government, foresees changes to the Civil Code requiring a qualified majority of 3/5 of votes.
Other measures envisaged in the draft law are the establishment of a special court section dealing with the execution of collateral and an amendment to the law on registration of real estate because of problems with the real ownership of property put up as collateral.
Public bailiffs are also expected to work on commission, as a stimulus to their performance.
Presenting the Bank of Albania annual report at the parliamentary economy committee this week, Bank of Albania governor Ardian Fullani said Albania’s high non-performing loan (NPL) portfolio was also a result of the very conservative methods used for their classification.
“If Albania used the same classification as in the region, bad loans would stand at 9.5 percent from 19 percent of the total currently,” said Fullani. The Albanian system classifies as non-performing loans even substandard loans whose holders have failed to pay instalments from 61 to 90 days at a time when in regional countries only doubtful and lost loans are taken into consideration. Under the BoA regulation, loans are considered doubtful when borrowers have not been able to pay back for 180 days from their final deadline and lost when the payment has been delayed by more than one year. Banks in Albania also do not include in calculating NPLs collateral coverage, which according to Fullani stands at 85 percent.
Assuring of the stability of Albania’s banking system, Fullani said that stress tests have shown that the system can resist shocks even if bad loans rose by another 50 percent as only two banks would need to raise capital.
Banks’ capital adequacy ratio rose to 15.6%, 3 percent above the BoA minimum requirement of 12% at the end of 2011.
Banks’ profits in 2011 registered their lowest rate during the past 12 years as bad loans reached a historical high record of around 19 percent, according to statistical reports published by the Bank of Albania this week. Data show banks’ net profits at the end of 2011 were only 706 million lek (Euro 4.95 million), the worst level since the 1997-1998 pyramid investment schemes when banks registered negative balance sheets. The 2011 profits are almost 10 times lower compared to 2010 and 15 times lower compared to the peak 2007 profits of 10 billion lek (Euro 70 million).
Latest Bank of Albania data show the construction sector leads the NPL portfolio with 29.6 percent, followed by trade with 21.3 percent and agriculture with 13.6 percent. In December 2011, non-performing loans for the real estate sector climbed to 12.55 percent from 9 percent a year ago. The NPL rate for individuals is estimated at 15.35 percent compared to 20 percent for businesses
A survey of international institutions and banks operating throughout the region has identified the enforcement of collateral which tends to take too long and rely heavily on cumbersome judicial processes, as the top issue among a long list of of obstacles in the legal, judicial, tax, and regulatory areas.
At around 19 percent in 2011, Albania’s non-performing loans are among the highest in Central, Eastern and Southeastern Europe (CESEE), becoming a drag on economic growth, according to a recent report issued by the European Bank Coordination Initiative. The report surveying 21 CESEE countries ranked Albania as the fourth most problematic in the region after Montenegro, Lithuania and Latvia whose non-performing loans (NPL) levels reach up to 25.3 percent.
Time needed for the execution of collateral, one of the key barriers for rising bad loan portfolio, was cut by 30 percent in 2011, when non-performing loans climbed to a record 19 percent. Data by Tirana’s District Court show it took an average of 207 days to execute collateral in 2011 compared to 297 days in 2010. The process involves an estimated 101 days for the issue of the execution order by the Court and 106 days in appeals against bailiff’s offices, according to data obtained by Scan TV. However, cooperation with private bailiffs has considerably reduced time.
