New tide of financial crisis threatens Albania, Eastern Europe, says EBRD

TIRANA, July 27ؔhe European Bank for Reconstruction and Development (EBRD) stated that Eastern European countries, including Albania, may face a second wave of financial crisis and that government should take the necessary measures to cope with the risks involved.
In a speech given at a conference organized by the Vienna Institute, EBRD President, Thomas Mirrow said that a huge increases in bad credit in countries all over the region and the difficult situation in which many businesses have found themselves since the start of the global economic crisis in 2008 is being accompanied with higher unemployment rates and negative performances in banks’ balance sheets.
“It is a difficult challenge that we should not underestimate, not just economically, but also politically. We should not let ourselves be blown away by euphoria or blind optimism,” said Mirrow.
The first wave of financial crisis in Eastern Europe was reported in February 2009 when foreign investors stopped injecting new capital into the region’s economies by cutting short their investments, both new and existing ones. It resulted in a considerable depreciation of national currencies and weakened the paying ability of borrowers. Banks all over the region operated a big chunk of their credit in foreign denominations and the diminished payback power of their clients due to the unfavorable exchange rates brought an imminent catastrophe to banking systems around the region. The ultimate blow was avoided due to interventions from the International Monetary Fund and guarantees offered by EU countries and the European Central Bank.
However, the risks remain, says EBRD. As the economic crisis continues to spread, or at the very least, its persistence, many borrowers have lost their ability to pay back their loans. Exporters have delayed payments of their loans due to diminished foreign demand, individual borrowers have lost their jobs, etc. As a result, even though the possible crisis of the payment accounts was avoided, the region is now faced with mounting bad credit.
Countries such as Turkey, Ukraine, Romania, and Albania have already seen their bad credit double in 2009.
According to the latest data from the Banks Society, bad loans in Albania were calculated at 65 billion Lek at the end of May 2009, twice the amount of 2008. That is 8.9% of all credit given by the banking system. Another 7.7% has been recorded as delayed loans, with payments delayed from a few days to a few weeks.
Despite the troubling data, it is not yet time to ring the alarm bells as far as Albania is concerned. The country shows no sign of financial or liquidity crisis. Considering that the credit to deposit ratio is around 60%, the current increase in unpaid loans will simply eat into bank profits.
However, it is a sign the real economy is suffering and measures advised by EBRD, such as restructuring of private debt and reduction of risks from the currency exchange rate fluctuations, should be taken to make sure the situation does not deteriorate.