Term deposits in Lek are increasing for the first time in a decade

2024-09-11 08:55:31, Ekonomi CNA

Term deposits in Lek are increasing for the first time in a decade

Illustrative photo

Time deposits in Lek are increasing for the first time after ten consecutive years of decline.

Bank of Albania statistics show that since April of this year, time deposits have returned to growth on an annual basis, for the first time since 2013.

The growth continued throughout the second quarter and at the end of June, time deposits in the local currency reached the value of 205.4 billion ALL, an increase of 2.1% compared to the same period a year ago. It seems that the increase in deposit interest rates has increased the incentives for the public to put their savings in term deposits.

According to data from the Bank of Albania, for the month of June the average interest rate of new time deposits in Lek reached 2.02%. Interest on deposits has increased significantly since the end of 2023, when it marked the level of 1.64%, as well as compared to the same period a year ago, when it was 1.46%.

The increase in deposit interest rates is being driven by a higher demand by the banking sector for funds in local currency for local currency by the banking sector. In the first part of this year, a very rapid increase in credit in the local currency is being observed.

For the 6-month 2024, the new loan in Lek increased by 52% compared to the same period of the previous year.

Source: Bank of Albania

On the other hand, the growth of Lek deposits in general in recent years has been slow, reflecting a strong tightening effect of the fiscal policy. This has increased the banking sector's need for funds in the local currency and has increased interest rates on deposits in Lek.

Starting from 2014, term deposits in Lek started a cycle of decline, which was especially influenced by the gradual reduction of interest rates.

Savings in banks began to be dominated mainly by current accounts and demand deposits. Even the change in the course of monetary policy in 2022 and the rapid increase in the base interest rate were not enough to bring about a rapid recovery of term deposits, although growth rates slowed.

Only this year, time deposits in Lek are returning to growth, also supported by the increase in interest rates.

However, the cycle of increasing interest rates seems to have reached its peak, even in July the Bank of Albania applied the first reduction of the base interest rate since 2020.

Although there is uncertainty as to whether the reduction will continue further this year, interest rate expectations have clearly shifted to the downside.

However, the transmission of monetary policy signals to deposit interest is generally slower than to loans, so in the short term interest rates for term deposits in lek seem to continue to be at attractive levels./ Monitor .co.uk