T-Bill yields, loan interest rates drop

TIRANA, Dec. 26 – T-bill yields registered another drop in the latest auction held by the Bank of Albania, positively reflecting the consecutive cuts in the key interest rate by 1.25 percent to 4 percent the central bank has made since Sept. 2011. Central bank data show 12-month T-bill yields dropped to an average of 6.35 percent in the latest December 24 auction, down from 6.38 percent in the previous auction and a record 7.5 percent last March, registering the lowest rates for 2012. 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 also been positively reflected on interest rates on lek-denominated loans.
Average interest rates on lek-denominated loans significantly dropped to 9.11 percent in October 2012, down from 11.1 percent last September and 11.41 percent in October 2011, for the first time reflecting the central bank’s consecutive cuts to the key interest rate. Since Sept. 2011 the Bank of Albania has lowered the key interest rate by 1.25 percent to 4 percent over this one-year period but until recently the moves had been poorly reflected in lowering interested rates in lek-denominated loans or T-bill yields.
However, the reduction in loan interest rates have been unable to increase lending which rose by only 4 percent during the first ten months of this year. Deposits also slowed down to 7.6 percent in January-October 2012. Bad loans at a record 22 percent and falling demand by both businesses and individuals for new loans have considerably affected credit growth this year which is struggling to preserve its growth rates, registering the lowest rates in the past decade.