TIRANA, March 15 – Yields on government securities have registered a sharp decline during this year fuelled by the key interest rate standing at a historic low of 1.75 percent and poor demand for new loans urging banks to turn to investments in T-bills and bonds.
Yields on 12-month T-bills, government’s key instrument for internal borrowing, dropped to 1.67 percent in the latest Bank of Albania auction, down from 1.71 percent in the previous auction and 2.21 percent in early January 2016.
The drop in yields has also been fuelled by high demand to invest in government securities considering more favourable interest rates compared to traditional bank deposits whose average interest rates on 12-month lek-denominated deposits have dropped to as low as 1 percent.
Yields on 12-month T-bills have more than halved in the past three years, dropping from 6.6 percent in early 2013 to 3.83 percent in January 2014 and 2 percent in early 2016.
The cut has considerably reduced the cost of government’s internal borrowing, with 12-month T-bill being the key instrument.
Experts explain the declining trend in T-bill yields with the consecutive cuts to the key rate and more active participation by commercial banks which have turned to investments in government securities due to poor demand for new loans and tight lending standards as non-performing loans continue remaining high at 17 percent although on a downward trend since their peak level of 25 percent in mid-2014.
The Bank of Albania organizes 3-month and 6-month T-bill auctions every month and 12-month T-bill auctions every two weeks. T-bills are issued and guaranteed by the Ministry of Finance on behalf of the Albanian government.
