TIRANA, May 18 – Albanians are withdrawing deposits from banks to invest them in the more profitable newly established investment funds, according to data published by the country’s central bank and the Financial Supervisory Authority.
With bank interest rates on deposits denominated in the national currency and in Euro standing at a record low, the only two investment fund operators controlled by Raiffeisen Bank, the country’s biggest commercial bank, are emerging as a more competitive alternative in investing savings due to higher interest rates compared to traditional bank deposits.
Data shows Albanian households withdrew around 3.2 billion lek (€22.4 mln) in deposits from banks and invested around 2 billion lek (€14 mln) in investment funds in the first quarter of this year compared to the end of 2014.
Net assets in the two investments funds rose by around 3.2 percent to 65.7 billion lek (€460 mln) in the first quarter of 2015 compared to the end of 2014. “The market is dominated by investments in government securities which represent around 75 percent of the funds’ assets, an increase of 3.2 percent compared to the end of 2014,” says the Supervisory Authority in a report. Some 33,000 people are reported to have invested in these funds by the end of the first quarter of 2015, up from 32,669 at the end of 2014 and 28,422 in 2013.
Meanwhile, bank deposits, half of which are denominated in Albanian lek, shrank by 0.33 percent to 974.2 billion lek (€6.82 bln) in the first of this year compared to the end of 2014 as interest rates on both lek and euro-denominated deposits hit record lows at a time when Albania’s central bank has cut its key rate to a historic low of 2 percent and the European Central Bank has kept rates at a historic low of 0.05 percent since September 2014.
The lower interest rates driven by cuts to the key rate and government’s increase in the withholding tax on interest rates by 5 percent to 15 percent starting this year have been targeting discouraging investments in deposits and orienting them toward sluggish consumption and private investments.
Central bank data shows interest rates on 12-month lek-denominated deposits dropped to 1.46 percent last March, down from 1.57 percent last February and 2.16 percent a year ago, standing below inflation rate which hit 2.2 percent last March, making bank deposits one of the least attractive investment opportunities. Interest rates on 12-month Euro-denominated deposits also dropped to a historic low of 0.41 percent.
Lending to the economy slowed down to 2.2 percent last March while deposits grew by only to 2.55 percent amid competition from the newly established investment funds, according to central bank data.
Rapid growth sparks concern
The rapid growth of investment funds favoured by higher interest rates compared to the traditional bank deposits has forced the Albanian Financial Supervisory Authority to undertake legal initiatives targeting increased transparency toward investors and the fund’s risk administration.
The Authority’s director Enkeleda Shehi says “the strengthening of the transparency regime and consumers’ education is very important considering the novelties financial investments activities produce on the market, with risks not always easily understandable by consumers.”
“Risks have increased due to the recent efforts by some unlicensed operators to offer financial products or services,” said Shehi.
The International Monetary Fund has also warned that “while these funds have helped diversify the ownership of government securities, they are inadequately supervised and regulated, invest mostly in longer-dated securities and their clients appear to consider these funds as substitutes for bank accounts.”
Currently only two investment funds, Raiffeisen Prestigj and Raiffeisen Invest Euro operate in Albania, making it a pure monopoly market. The funds were established in early 2012 by Raiffeisen Bank Albania, the leading commercial bank operating in Albania. The timing coincided with the decision of Raiffeisen decision to scale back its participation in the public debt market to limit its exposure to the Albanian sovereign debt.
Investments funds represented the second biggest financial market at the end of 2014 with assets estimated at 4.6 percent of the GDP.
