TIRANA, May 16 – The surprise bankruptcy of Turkish-run Kurum steelmaker, one of the country’s largest foreign investors, increased the stock of non-performing loans and affected profits by local banks in Albania in the first quarter of this year, according to central bank data.
Following a downward trend since the third quarter of 2014 when they reached a historical high of about 25 percent, NPLs slightly increased to 18.88 percent in the first quarter of this year, up from 17.37 percent in the final quarter of 2015 and 22.69 percent in the first quarter of 2015.
Meanwhile, banks’ profits dropped to a mere €10.3 million in the first quarter of this year, up from €42.3 million during the same period in 2015, registering a three-year low.
Central bank governor Gent Sejko warned last March the bankruptcy of Kurum would increase the stock of non-performing loans by 1 percent, equivalent to €40 mln, in the Albanian banking system.
Kurum International has been operating in Albania for the past 18 years mainly in steel production in Elbasan, but expanded its activity in Durres Port through a container terminal concession and purchased for small and medium-sized hydropower plants in the past few years.
Kurum is estimated to have borrowed some €40 million from 3 local banks in Albania and another €126 million from the World Bank and the Black Sea Development Bank in the past five years. Last April, a Tirana District Court ruled to suspend the execution of collateral against Kurum steelmaker and allow the company to renegotiate loans with its creditors to save it from bankruptcy.
Kurum is the largest employer in the city of Elbasan, central Albania, which suffers high unemployment rates and high pollution levels because of the plant’s operation.
Banks’ profits hit a historic high of 15.7 billion lek (€111.7 mln) in 2015 as non-performing loans dropped to 17.66 percent and deposit interest rates registered a record low, according to central bank data. The surge in profits comes at a time when lending to the economy contracted by 2.4 percent in 2015, registering the second post-crisis decline after a slight drop in 2013.
Banks’ profits were fueled by a sharp cut in spending on interest rates as lek-denominated deposit interest rates dropped to a historic low of 1.36 percent at the end of 2015 while average rates on loans in the national currency slightly dropped to 7.69, six times higher compared to deposits rates. Bank credit in Albania is largely funded by local deposits with the loan-to-deposit ratio at 55 percent. Some 16 commercial banks operate in Albania, the overwhelming majority of which are foreign-owned.
Lost loans slightly increased to 9.68 percent or €390 million in the first quarter of 2015. The country’s central bank says further reducing non-performing loans is a pre-condition for a recovery in credit at a time when new bankruptcies in the industry sector are posing a new threat. Despite the key interest standing at a historic low of 1.25 percent, credit has failed to recover due to sluggish demand by both businesses and households and tight lending standards applied by banks as non-performing loans remain high.
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.
