T-bill yields hit new record low

TIRANA, Nov. 14 – T-bill yields registered another drop in the latest auction held by the Bank of Albania, positively reflecting the cut in the key interest rate by 0.25 percent to 4 percent last July. Data show 12-month T-bill yields dropped to an average of 6.41 percent in the latest November 11 auction, down from 6.61 percent in the previous auction and a record 7.5 percent last March, registering the lowest rates for this year. Six-month T-bills also dropped to 6.06 percent, down from 6.13 percent previously and an average of 6.2 percent during the year.
A sharp rise in competitive bids and government’s lower demand for debt has also influenced on the downward trend in government securities. Meanwhile, the cut in the key interest rate has been poorly reflected on interest rates on lek-denominated loans. Average interest rates on lek-denominated loans remained unchanged at 11.1 percent in Sept. 2012, the same to Sept. 2011 despite the central bank having lowered the key interest rate by 1.25 percent to 4 percent over this one-year period. The unchanged interest rate reflect the poor transmission of the monetary policy at a time when bad loans have reached a record 21 percent and demand for new loans stands at low levels. Meanwhile, interest rates on Euro-denominated loans dropped to 7.2 percent in Sept. 2012, down from 7.5 percent in Sept. 2011, reflecting the European Central Bank record low key interest rate of 0.75 percent.
While banks have kept interest rates on lek-denominated loans unchanged year-on-year, the drop in deposit interest rates has been at 0.7 percent. Interest rates 12-month Lek denominated deposits dropped to 5.2 percent in Sept. 2012, down from 5.9 percent a year ago. Interest rates on deposits in Euro also dropped to 3 percent down from 3.3 percent in Sept. 2011.
Differently from loans, 63 percent of which are issued in foreign currency, mainly in Euro, the situation with deposits appears more balanced with lek deposits accounting for 52 percent of total deposits.