TIRANA, April 5 – New rules adopted by Albania’s central bank now allow borrowers to convert their loans to the currency they generate their income and request samples of their loan instalments both in the national and foreign currency.
The decision made this week by the Bank of Albania’s Supervisory Council is part of a de-euroisation package Albania adopted earlier this year in a bid to discourage current high levels of borrowing and saving in Europe’s single currency. The package that will be in force by next June also targets improving the pass-through of the central bank’s easier monetary policy and protect borrowers and savers from unfavorable exchange rate fluctuations considering that credit and deposits in Europe’s single currency account for more than half of the total.
“In addition to some requirements for banks, the adopted changes also envisage the consumers’ right to request the conversion of the loan to the currency they generate their income as well as being provided an illustrating example as part of the pre-contract information in cases when applying for loans in currencies different from what they generate their income,” the central bank said in a statement this week after a meeting of its Supervisory Board.
The changes to the regulation on consumer and mortgage loans also target increasing consumer protection and approximating Albanian legislation to European directives, says the central bank.
The changes are also envisaged in the de-euroisation package that the central bank adopted last February when in a bid to raise awareness of the risks facing borrowing in foreign currency, commercial banks were asked to propose borrowers an alternative lek-denominated loan and provide examples of changes in loan instalments in case of currency exchange fluctuations.
Experts estimate Albania’s current euroization level of about 47 percent needs to drop by only 10 percent in order not to negatively affect the country’s banking system and economy..
The de-euroisation package makes it more expensive for commercial banks to provide Euro-denominated loans and accept deposits in Europe’s single currency, by their increasing compulsory reserve requirements and lowering requirements for credit and savings in the national currency.
Albania’s central has been keeping the key interest rate at a record low of 1.25 percent since mid-2016 in an ongoing easier policy in a bid to stimulate lending and consumption, but credit has struggled to return to positive growth rates negatively affected by declining but still high level of non-performing loans leading to tight lending standards and poor demand by both businesses and households.
Credit to the economy grew by a mere 0.7 percent in the first two months of this year, but the central bank says the real hike was at 5.8 percent when adjusted for the national currency’s strengthening against Europe’s single currency which accounts for more than half of total credit.
The euro traded at an average of 132.72 lek in February 2018, down 2.2 percent compared to the same period a year ago.
Albania’s national currency currently trades at a 9-year high of about 130 lek against the euro, with the central bank attributing the strengthening which negative affects the country’s exports and savings in Europe’s single currency to the free-floating exchange rate regime determined by demand and supply and higher GDP growth fuelled by an increase in Euro-denominated FDI and tourism revenue.
However, some experts argue the euro inflows from the hike in cannabis cultivation and trafficking in 2015-2016 and ongoing drug trafficking have also had an impact.
With the euro trading at 9-year low of about 130 lek, the central bank’s loan conversion policy does not currently benefit borrowers in euro who generate their income in the national currency, but targets mid and long-term protection.
The depreciation of the euro against the national currency is good news for borrowers in Europe’s single currency who have their income in lek, the government’s external debt payments as well as imports whose cost has slightly dropped.
The national currency, lek, has been on a gradual upward trend that began in mid-2015 as the euro’s five-year reign of about 140 lek came to an end, negatively affecting Albania’s poorly diversified exports, two-thirds of which are destined to Eurozone countries.
