TIRANA, March 30 – 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 1.75 since last November, 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 at 17 percent compared to a peak level of 25 percent in mid-2014.
“The central bank expects better progress of credit in the mid-term but this forecast remains conditioned by the further improvement of the lending environment in the country,” said Sejko introducing an annual report of the Bank of Albania at the parliamentary finance committee this week.
“In this context, I would underline that the national plan of tackling non-performing loans must be considered as a non-negotiable precondition for the future credit growth,” said the governor.
Sejko said the possible bankruptcy of Kurum steelmaker which has recently initiated bankruptcy proceedings would increase the stock of non-performing loans by 1 percent. The bankruptcy of ARMO oil refiner would not affect the NPL level as banks have already made provision for potential losses against the failed privatization of refiner where the government still holds a minority 15 percent stake.
The governor has earlier noted the central bank could further cut its key interest rate to stimulate credit growth and also use quantitative easing to inject liquidity into financial markets.
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.
“Excluding the effect of the loan write-off from balance sheets, credit to the private sector rose by 12 billion lek (€85mln) or 2.2 percent in 2015,” said Sejko.
The easier monetary policy the central bank has been applying in the past five years has also reduced the high euroization in lending with credit in the local currency recovering to 41 percent of the total at the end of 2015 compared to 32 percent in 2010.
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.
Lending to the economy has been striving to maintain positive growth rates since 2012 after growing by 30 to 50 percent annually in the pre-crisis years and an average of 10 percent from 2009 to 2011.
Tackling high NPLs is essential for easing bank risk aversion which continues to thwart a revival in the flow of credit and the broader recovery, says the IMF.
However, 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.
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.
The loan rates, although considerably lower to the pre-crisis period, are still considered high and unaffordable by the business community because of being six times higher compared to the deposit rates which have dropped below the average inflation rate for the past year.
