Non-performing loans closed 2023 at 4.7%, the lowest in the last 15 years

2024-02-07 08:15:39, Ekonomi CNA

The ratio of bad loans at the end of last year fell to the lowest level in the last 15 years.

According to information from the Bank of Albania, the ratio of problem loans in December fell to 4.7%, from 5.1% that was in November and 5% that had been at the end of 2022. This indicator has touched the lowest level since October of 2008.

The performance of non-performing loans last year was significantly better than expected. At the beginning of the year, the projections of the Bank of Albania and commercial banks were oriented towards a slight increase in the ratio of problem loans, due to the slowdown in economic growth and the increase in interest rates. But, such a thing did not happen.

The data so far show that the economy grew at a slower pace during 2023 (3.1-3.2% until the end of the 9th month), but this did not bring a deterioration of the bank loan portfolio. Experts believe that the limited effect of the tourism sector on economic growth can also be explained by a rather high degree of informality. Beyond what official statistics show, the tourism sector is estimated to have had a significant effect on the demand for goods and services and on the health of the private sector of the economy.

Non-performing loans closed 2023 at 4.7%, the lowest in the last 15 years

It is believed that a significant impact on the decrease in the ratio of non-performing loans was given by the small increase in interest rates by the Bank of Albania during the past year, but also by the strengthening of the Lek in the exchange rate.

The Bank of Albania raised the base interest rate only twice in 2023 and the level of 3.25% is among the lowest in Europe, far from the rates applied by central banks in Europe and the region. This kept loan yields and interest rates at low levels, even largely correcting the strong growth of late 2022.

Low interest rates also contributed to a better-than-expected performance in lending. The loan portfolio at the end of last year recorded an annual growth of 4.2%, despite the statistically negative effect of the exchange rate. The expansion of the loan portfolio also helped to reduce the specific weight of the non-performing loan portfolio.

Also, the exchange rate played an important role in maintaining the solvency of borrowers in foreign currency, but with income in Lek. At the end of 2023, the Euro-Lek exchange rate was in annual decline by 9.1%, but in certain periods of the year, the annual decline of the exchange rate reached up to 14%./ Monitor.al