Banks in Albania with a plan to restructure bad loans and encourage lending

Banks in Albania with a plan to restructure bad loans and encourage lending

IBNA Special Report

Tirana, September 3, 2014/Independent Balkan News Agency

Bad loans have turned into a real concern about the banking sector in Albania. In an effort to stop the rise of bad loans and encourage lending, governor of the Bank of Albania, Ardian Fullani has had a meeting with heads of the banking system in the country.

At the center of discussions were problematic loans and a project to restructure business loans.

Bank of Albania, in cooperation with the Financial Sector Advisory Center (FinSac) of the World Bank based in Vienna, has drafted a platform to treat problematic loans. This project comes as part of the measures previously taken by the Bank of Albania, where some of the most important ones relate to legal amendments for the facilitation of the process of the execution of the collateral, the payment of bailiffs and those that regulate the cancellation of loans from bank statements.

Restructuring of problematic loans is well studied

The close cooperation with experts of FinSac aims a deep and professional restructuring and improvement of the handling of problematic loans.

“The intensification of contacts and the establishment of sustainable relations between banks and borrowers, will lead to a well studied process of restructuring problematic loans and to encourage the revival of lending”, said governor Fullani.

In the opinion of the Bank of Albania, the necessary conditions have been put in place for a more active activity of banks. According to Fullani, a positive step in this direction is the payment of arrears by the public sector to private companies.

Private banks ready to cooperate

In the meeting with heads of private banks in Albania, participants expressed their commitment for this project. Some considered it as a necessity to address problematic loans.

Banks expressed their commitment to take all the necessary measures in order to achieve the objectives of this project.

FinSAC has been founded by the World Bank and aims at offering technical assistance on issues of regulation and oversight of financial sector for central banks and financial regulators in Europe and Central Asia.

Bad loans, figures are problematic

The latest report of the European Bank for Reconstruction and Development (EBRD), ranked Albania as a country with the highest level of bad loans in southeast Europe. In January 2011, the total value of loans amounted to 490,3 billion ALL. Out of these, 14,5% or 71 billion ALL were classified to be bad loans.

In 2012, the total amount of loans was 564,5 billion ALL. Out of these, problematic loans went up by 18,9% or 106 billion ALL.

In 2013, the total value of loans issued by banks amounted to 573,8 billion ALL, where household loans amounted to 148,2 billion ALL and business loans amounted to 425,5 billion ALL. Problematic loans further increased to 23,2% of the total value of loans.

In 2014, the total value of loans was 561,1 billion ALL and 24,1% consisted on bad loans. Household loans amounted to 148,9 billion ALL and business loans amounted to 412,2 billion ALL.

From January 2011 until January 2014, we have an increase of 66,6% of problematic loans.

This high figure has alarmed banks, because an increase of bad loans could have serious consequences for the economies of the country, as banks are reluctant to issue new loans and as a result, the economy slows down.

Most of the loans go for businesses

As far as bad loans are concerned, the majority of them are business loans. In 2011, business loans occupied 69,7% and household loans occupied 30,3%.

In 2012, business loans occupied 73,6% and household loans occupied 23,7%. In 2013, business loans occupied 74,1% of the total, while household loans occupied 25,9% of the total.

In 2014, business loans occupied 73,4% of the total while household loans occupied 26,6%.

Deposits have also seen an increase from January 2011 to January 2014. In 2011 they were 825 billion ALL, while in 2014, they had gone up by 24,4%. /ibna/