One in two key industry companies failing to pay off loans

TIRANA, Oct. 15 – Bad loans in the construction, manufacturing and trade industries have reached alarming levels with one out of two debtor enterprises failing to pay off for at least three months which is the deadline classifying loans as non-performing, warns the Bank of Albania. In its financial stability report for the first half of 2013, the central bank says bad loans in the construction sector rose to a record 53.2 percent in the first half of this year compared to 32.3 percent at the end of 2012. The processing industry also saw its bad loan portfolio increase to 44.6 percent compared to 27.7 percent at the end of 2012. Meanwhile, bad loans for businesses operating in the trade sector rose to 46.2 percent, compared to 29.2 percent at the end of 2012.
Bad loans have also sharply risen to around 38 percent in the agriculture sector, from around 22 percent at the end of 2012.
In its latest financial stability report, the Bank of Albania warns the credit risk represents the main challenge in the banking system activity. “The presence of a high stock of non-performing loans in banks’ balance sheets increases the cost of the banks’ activity, limits their financial intermediation ability and requires the use of additional and non-efficient capacities.”
More recently, the first transactions enabling the transfer of non-performing loans from banks to non-bank financial operators who act on their collection have been registered.
At the end of the first half of 2013, non-performing loans for households rose to 18.44 percent, increasing by 1.5 percentage points compared to the end of 2012 and 2 percentage points compared to the end of first half of 2012.
Because of the credit shrink, non-performing loans for businesses rose to 26.49 percent at the end of the first half of 2013 compared to 22.77 during the first half of last year.
With lending having plunged to negative growth rates, non-performing loans which are considered the second major threat to the Albanian economy after public debt, slowed down in the first half of this year increasing by only 1.6 percent to a total of 24.4 percent compared to the end of 2012.
Non-performing loans which have reached a record more than 1 billion euro are affecting banks’ profitability so badly, making them unable or unwilling to lend more, says Seyhan Pencabligil, the chairman of the Albanian Association of Banks. The Association of Banks says the better news is that most of these bad loans are collateralized and all they need is efficient execution of collateral to liquidate the problems and revitalize the economy.