Tighter Loan Policy For Large Businesses, Consumer Loans

By Gajtis Bejleri
TIRANA, June 24 – Albania’s commercial banks will tighten their loan policies during 2008, especially towards larger businesses. The conclusions of a poll conducted by the Bank of Albania reveals that commercial banks are worried about the sharp increase in the number of bad loans which have been issued. The poll was answered by the ten largest commercial banks in Albania, controlling together some 94 percent of the capital market. The poll was conducted to assess how banks will respond to bad loan jitters. Just during the first quarter of 2008, bad loans jumped by 25.2 percent and now comprise 3.92 percent of outstanding loans.
According to the poll, the banks’ loan policies will change according to the type of loan and the borrower. Large corporations are going to face tighter loan practices, but the majority of the banks declared that their loan policies would be slowly eased. The majority of commercial banks also said they are going to tighten long-term capital loans to Albanian large businesses because these were considered high-risk investments. However, it appears banks are not going to stiffen their loan policy for short-term circulating capital. However, all banks declared they intend to ease their loan policies towards small and medium-size enterprises (SMEs).
Regarding individual credits, banks answered that they are going to stiffen their loan policies for consumer loans. At the same time, banks are prepared to ease rules for new home loans. According to the studies conducted by commercial banks, there is a huge demand for home loans because of the high demand for housing.
Only two banks, controlling 27 percent of the capital market, said they are going to tighten up home loans, while the banks that control 42 percent of the loan market declared they are going to do the opposite. The rest said that, for the moment, they are not going to change their home loan policies.
On the other side, three banks, controlling 42 percent of the market, responded that they are going to tighten their loan policies for consumer loans, while the rest declared their policies will remained unchanged. The demand for consumer loans has increased significantly, but the banks are refusing to repeat the experience of the last two years. It is common knowledge that the majority of bad loans are consumer loans awarded in the last two to three years.
In general, four of the ten banks, which control 53 percent of the loan market, said they would tighten up their loan policies, while banks, which control 32 percent of the loan market, declared they will ease their lending practices.
While the demand for new loans is increasing, the majority of banks are replying by awarding more loans in foreign currency. Albanians prefer borrowing in foreign currency because of lower intermediation rates. However, the Bank of Albania has warned commercial banks that a slight change in the exchange rates may throw into bankruptcy those Albanians who are paid loans in Albanian Lek.
The questionnaire of the Bank of Albania also included questions on expected currency exchange rates, expected interest rates and prices in the house market.