The ratio of non-performing loans in Albania remains among the highest in the region

2024-07-16 07:20:00, Ekonomi CNA

Albania still continues to have one of the highest NPL ratios in the Western Balkans region.

Comparative data from the Vienna Initiative, a project of the European Bank for Reconstruction and Development (EBRD), show that, despite the positive trend of recent years, the ratio of non-performing loans in Albania at the end of 2023 was the second highest in region, after Montenegro.

At the end of last year, the ratio of non-performing loans in Albania was 4.7%, with a decrease of about 0.3 percentage points compared to the previous year. Montenegro held the highest level in the region, with a reported non-performing loan ratio of around 5.8%.

Other Western Balkan countries had this indicator at significantly lower levels. In Bosnia-Herzegovina this ratio was at the level of 3.8%, in Serbia 3.2%, in North Macedonia 2.7%, 3.1% and in Kosovo and 2.5%.

Albania was among the countries where this report showed a positive trend last year, with a decrease of 0.3 percentage points compared to the previous year. Even in Bosnia-Herzegovina this ratio fell by 0.7 percentage points, in Montenegro by 0.6 percentage points and in North Macedonia by 0.1 percentage points. This indicator marked an increase only in Serbia, by 0.2 percentage points, while for Kosovo, the ratio of non-performing loans was at similar levels to a year ago.

In fact, the year 2023 was predicted as a delicate year, because the increase in interest rates and the slowdown in economic growth could be reflected in a decrease in the solvency of borrowers in the countries of the region. But, in general, the trends of the ratio of problem loans have been positive, including our country, despite the fact that Albania still has one of the highest levels in the region.

According to INSTAT's preliminary estimates, the Albanian economy grew by 3.44% last year.

The inflationary blow and the increase in interest rates has brought a slowdown in economic growth from the level of 4.8% in 2022, but nevertheless the growth rates of the Albanian economy remain good in relation to most countries of the European Union and the Western Balkans Region.

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, although this effect may not be fully apparent due to high informality.

It is believed that the small increase in interest rates by the Bank of Albania during the past year, but also the strengthening of the lek in the exchange rate, had an important impact on keeping the ratio of non-performing loans under control.

The Bank of Albania raised the base interest rate only twice in 2023 and the level of 3.25% was 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.

Another factor that is estimated to have positively influenced the performance of non-performing loans is the strengthening of the Lek in the foreign exchange rate. The strengthening of the local currency has reduced the cost of loans in foreign currency for borrowers with income in Lek./ Monitor Magazine