The government "dry" the market for Lek?/ The support of the banking sector with liquidity from BSH reaches the highest historical level

2023-11-28 08:25:00, Ekonomi CNA

The government "dry" the market for Lek?/ The support of the banking

Illustrative photo

The support of the banking sector with liquidity from the Bank of Albania has reached the highest historical levels in September-October.

Statistics show that at the end of October, the loan through reverse repurchase agreements (REPO) reached ALL 62.5 billion, the highest value ever reported by the central bank. Compared to the same period a year ago, the reported value of financing with REPO is increasing by almost 41%.

Bank borrowing at the Bank of Albania is usually carried out through the instrument of reverse repurchase agreements, while other instruments, such as, for example, the overnight loan, have a less frequent use.

The increase in the financing of the banking sector with short-term instruments, such as REPOs, is basically an indicator of the short-term lack of liquidity in the banking sector.

According to data from the Bank of Albania, loans in lek have increased significantly this year, while deposits in the local currency are practically at a standstill. At the end of September, the annual growth of deposits in Lek was only 0.3%. Meanwhile, the loan portfolio in local currency for the same period was growing by 9.3% on an annual basis.

The financial sector is at a moment when liquidity in Euros is quite abundant, due to the high growth of deposits in the European currency (annual increase of 16.5% at the end of September, while rarely, liquidity in Lek appears tighter .

This may also be one of the reasons that have led to the further strengthening of the Lek in the exchange rate with the Euro.

According to banking sector experts, a factor with a high impact on the lack of liquidity in the local currency can be the high surplus that the state budget has accumulated.

Based on the reports of the Ministry of Finance and Economy, at the end of September the budget surplus exceeded the value of 51 billion lek, the highest level ever recorded.

In September, the value of REPO financing at the end of the month reached ALL 61.3 billion, while in October it further increased to ALL 62.5 billion.

The very high levels of the budget surplus seem to have somewhat dried up the liquidity in the Lek and forced the banks to use to a greater extent the instruments of liquidity support from the central bank.

The higher use by the banking sector of borrowing instruments from the Bank of Albania affects a faster transmission of monetary policy in the economy, for financial activity in the local currency.

The Bank of Albania increased the base interest rate (interest rate of one-week repurchase agreements) to 3.25% at the beginning of November.

This increase was immediately reflected in the yields of 12-month treasury bonds, which at this week's auction increased to 3.31%, from 3.1% at the end of October./ Monitor magazine