The strengthening of the lek reduced the bank loan portfolio by 40 billion lek

2023-10-12 11:52:00, Ekonomi CNA

The strengthening of the lek has shrunk the loan portfolio for the economy by 40 billion by the middle of this year.

According to the calculations of the Bank of Albania, the bank loan at the end of the 6th month of 2023 increased by 2% on an annual basis, where the main contribution to this increase was given by the short-term loan, the loan for individuals and the loan in lek.

Credit to individuals expanded at a particularly fast pace during the period and the annual change at the end of June reached 8.1%. The loan in Lek expanded by 5.9%, while that in foreign currencies expressed in Lek shrank by 2.5%. Adding the statistical effect of the exchange rate, which was negative for about ALL 40 billion, the annual change of the foreign currency loan would be calculated at 8.6%, while that of the general loan at about 7%.

According to the latest analysis of the Bank of Albania, within the framework of the de-euroization strategy, in the middle of this year foreign currency loans accounted for 50.3% of the total loan portfolio of the banking sector in Albania.

Although the weight of foreign currency loans is decreasing (also due to the statistical effect of the exchange rate), it remains in the majority and the strengthening of the lek has a direct impact on the shrinking of the statistical value of the portfolio. During the first part of 2023, the rapid appreciation of the exchange rate of the lek has influenced the contraction of credit, especially for the processing industry, the energy sector, that of trade and that of information and communication.

At the end of the first 6 months of this year, the euro was exchanged at 106.44 ALL, down 10.7% compared to the same period a year ago. The fall of the euro has also dragged down the exchange rate of other main currencies against the lek.

The appreciation of the lek during the period has influenced the slowdown of the reported value of credit for businesses and has somewhat changed its sectoral composition. Thus, the overall stock of outstanding credit for businesses, expressed in Lek, remained almost unchanged compared to a year ago, although in the meantime the Lek loan increased by 4% and the Euro loan, expressed in the original currency, increased by 9%.

The effect of the exchange rate was also significant in the total size of the assets of the banking sector. The balance sheet of the banking sector shrank slightly by 1% (about 13 billion ALL) compared to the end of 2022, under the statistical effect of the appreciation of the exchange rate of the ALL.

In annual terms, the balance growth rate slowed to 3.2%. Given that about half of the banking sector's balance sheet consists of instruments denominated in foreign currency, the statistical effect of the appreciation of the local currency against the main currencies during the period has been considerable.

Despite the fact that assets and liabilities in foreign currency have grown faster than those in lek, the growth of the balance in foreign currency has been restrained by the effect of the appreciation of the exchange rate of the lek. This has caused the weight of foreign currency items to the total balance to remain almost unchanged.

In annual terms, foreign currency assets shrank by 1%, while foreign currency liabilities expanded by 1%. But, if corrected for the effect of the exchange rate change, these changes would be up 10% and 13% respectively.

In terms of assets in foreign currency, the items with the largest weight remain lending activity and interbank investments, while during the last three years an increase in the share of investments in securities has been observed. In terms of liabilities in foreign currency, the structure is more stable over the years and is dominated by foreign currency deposits. The above items have largely determined the sensitivity of the banking sector to changes in the exchange rate.

The statistical diminishing effect of the exchange rate has also been felt on the foreign currency part of the capital of the banking sector, with a value of about ALL 14 billion./ Monitor.al