TIRANA, March 2 – Credit to the economy officially dropped by an annual 2.4 percent in 2015 registering the second post-crisis decline a slight drop in 2013, but the mandatory write-off of non-performing loans (NPL) seems to have artificially reduced lending.
Banks wrote off about 16.8 billion lek (€120 million) from their balance sheets in the first three quarters of 2015 after a new regulation requiring the mandatory write-offs of loans that have spent three years in the “loss” category came into force at the beginning of 2015, the government says.
Measured credit growth is lowered by a new regulation mandating write-offs of loans that have spent three years in the “loss” category. However, after removing the effects of NPL write-offs, credit to the private sector grew in September 2015 by only 1 percent, year-on-year, despite sustained monetary easing and ample liquidity in the system, says the IMF.
The Fund says credit growth to the private sector remains subdued as banks continue remaining risk-averse given the significant NPL overhang while difficulties with contract enforcement and collateral execution in the court system deter new lending.
In a letter to the IMF, the government says it is working with the central bank to develop recovery and resolution plans for large problem borrowers.
“By end-March 2016, we will draft a detailed action plan for handling the 35 largest holders of NPLs and we will change regulations to require banks to grant loans based on companies’ fiscal declarations, starting in January 2018,” says the government.
In addition, the government is drafting legal changes to better protect financial collateral and to increase the legal certainty of security rights over real estate.
The central bank is also expected to adopt measures to accelerate the reduction of NPLs through the use of out-of-court debt restructuring while the justice ministry is working to submit a new bankruptcy law to Parliament by mid-year.
Amendments are also being drafted to the Civil Procedure Code and the private bailiffs law to increase the efficiency of litigation, foreclosure procedures and debt collection.
Central bank governor Gent Sejko says high risk perception by both banks and businesses is holding lending at sluggish growth rates.
Lending to the economy has been striving to maintain positive growth rates since 2012 after growing by 30 to 50 percent annually in the pre-crisis years and an average of 10 percent from 2009 to 2011.
