Lending Standards Ease For Both Businesses And Individuals
Banks expect lending standards to further ease for businesses but further tighten for individuals in the first quarter of this year
Tirana Times
TIRANA, Feb. 14 – Lending standards marked a turning point in the final quarter of 2010 easing both for businesses and individuals after tough times in the first three quarters of last year. The results are confirmed by a lending survey published by the central bank this week which explained the ease of standards with the banks’ improved liquidity, capital adequacy and increased competition among the 16 commercial banks operating in Albania.
Despite the number of businesses applying for loans registering a slight increase in the fourth quarter of 2010, their overall demand for loans remained at negative rates, confirming the difficult situation the business community is facing because of falling purchasing power and a continuing saving trend by individuals. Lending standards during October-December were eased more for small and medium-sized business rather than corporations. However, the rising bad loans, the specific problems of the sector where businesses operate and the macroeconomic situation continued affecting the tightening of standards even during the fourth quarter of 2010, said the Bank of Albania survey. The only facilitating policies banks applied during the end of 2010 were increasing the amount of approved loans while the risk margin, loan maturity and demand for collateral remained tight.
The need to finance inventories and floating capital were the main factors which increased demand for business loans in the fourth quarter of 2010.
Lending standards for individuals eased during the final quarter, in line with the central bank’s expectations in the third quarter survey. Home loan standards continued remaining favourable despite slightly tightening compared to the previous quarter while consumer loan standards further eased.
Banks expect to grant more loans in the national currency, lek, rather than Euro during the first quarter of this year because of expected lower interest rates and facilitating policies by the central bank which continues keeping the repo rate unchanged at 5 percent, the lowest historical level, since July 2010. Experts say the sharp depreciation of lek against the European currency which has reached a record high at 140 lek, is another reason not to borrow in euro for those who are paid in lek.
However, lending in foreign currency especially Euro, continues accounting for 70 percent of the total portfolio mainly because of the difference in interest rates, revenues and purchases in euro, which is the currency the construction sector operates with since years now.
Banks expect lending standards to further ease for businesses but further tighten for individuals in the first quarter of this year. Banking experts say home loans standards will further tighten during the first three months of 2011 despite an expected increase in demand by individuals.
Lending standards during the third quarter of 2010 eased somehow for businesses but further tightened for individuals.
Meanwhile, bad loans continued growing rapidly even in the third quarter of 2010, confirming the severe financial problems businesses and individuals are facing to pay them off and somehow justifying the commercial banks’ tougher lending standards since the beginning of 2010. Central bank data show problematic or non-performing loans climbed to a record 13.5 percent of the total portfolio at the end of the third quarter of 2010, up from 9.82 percent during the same quarter in 2009 and 12 percent at the end of the second quarter of 2010.
Provision for bad loans also climbed to 8.16 percent at the end of September 2010, up from 7.31 percent last June and 6 percent in September 2009.
Despite rising bad loans and provisions on them, banks’ net profits increased to 3.95 billion lek (40 million dollars) at the end of September 2010, some 400 million lek more than the whole of 2009 when banks saw their profits halved because of the deposit withdrawal impact at the end of the 2008.
Latest central bank data show lending standards for businesses were largely eased in November 2010 when total lending increased by a record 13 billion lek (130 million dollars) compared to the previous month but remained tight for individuals.
Lending to businesses had almost remained frozen from May 2010 to October when it increased by a total of only 10 billion lek. Central bank data show lending to businesses, which accounts for 70 percent of the total loans, rose by 13 billion lek, a sign showing banks have eased their standards despite rising bad loans which in September 2010 climbed to a record 13.5 percent.
The majority of business loans are granted in foreign currency, mostly euro which accounts for more than 70 percent of the total. The bulk of new loans in euro granted to businesses were used for purchase of new equipment.
Meanwhile, lending to individuals remained almost unchanged last November increasing by only 267 million lek (2.6 million dollars) compared to October 2010.
The “Trade and repair of cars and household equipment” holds one-third of the total business loans, some 108.6 billion lek at the end of November 2010. Its loan portfolio increased by almost 5 billion lek compared to October 2010 and 13 billion lek year-on-year. Second came lending to the crisis-hit construction sector which increased by only 1 billion lek compared to October 2010. The processing industry ranks third with 14 percent of the total loans.
The International Monetary Fund expects the private credit growth to drop to 8.6 percent of the GDP in 2010, down from 10.3 percent in 2009 and 32.1 percent in 2008 when the global crisis started.
Deposits
Time deposits in the national currency Lek and euro continued growing slowly even in November 2010. Central bank data show time deposits in euro increased to 1.67 billion euros at the end of November 2010 up from 1.63 billion euros from the previous month and 1.21 billion euros in November 2009.
Time deposits in lek in November 2010 registered 318.6 billion lek (3.18 billion dollars) up from 314 billion lek last October and 288 billion lek in November 2009.
Meanwhile, time deposits in the US dollar remained unchanged at 413 million dollars in November 2010, but dropped 66 million USD year-on-year.
As elsewhere in the region, Albanian banks witnessed substantial panic deposit withdrawals in the face of spillovers from instability of global financial markets, which were compounded by concerns about the health of the Greek banking system in the fall of 2008.
