Credit "sprint"/BSH warns of another increase in capital requirements for banks

2024-10-07 10:20:00, Ekonomi CNA

Credit "sprint"/BSH warns of another increase in capital requirements

Bank of Albania

The Bank of Albania has decided to keep unchanged at 0.25% the rate of the countercyclical capital increase for the banking sector.

However, in the justification of the decision taken this month by the Governor, Gent Sejko, it is clearly stated that, if lending will continue to expand at the rates of the last months, the further increase of this rate at the end of 2024 has a high probability .

In June, the Bank of Albania decided to apply for the first time a countercyclical addition to the capital adequacy ratio of the banking sector.

The purpose of the countercyclical supplement is to slow down the pace of lending by the banking sector, in cases where the regulator judges that lending is growing at too fast a pace, creating increased risks for the stability of the sector.

Recent analyzes have also shown a significant acceleration of the growth rate of the real estate loan portfolio, both in annual and quarterly terms.

According to the Bank of Albania, the annual growth of the real estate loan portfolio reached 47.2% for the second quarter, from 20.9% which is the historical average growth (calculated approximately for the last 20 years).

The growth of this credit remains much faster than the growth of the overall surplus of bank credit and than the nominal growth of GDP.

In the same direction, according to the Bank of Albania, there have been developments in the housing price index, which has accelerated the pace of growth for the fourth quarter in a row, recording values ??above the historical average. Even the performance of the ratio of the housing price index against that of the rent has increased, with overall contribution from the performance of the housing price.

These two sub-indicators, which tend to reinforce each other's performance, are being closely monitored by the Bank of Albania. The analysis of the progress of the values ??of these two sub-indicators, together with the indirect information obtained from the survey of the debt burden of households, serve to identify and prevent situations in which the progress of prices in the real estate market is accompanied by an increase in systemic radiation.

At the end of the second quarter of 2024, the value of the early warning index (which includes the above indicators) remains above the historical average and has been mostly above this limit since the end of 2021. This development, according to the Bank of Albania, signals a situation in which the pace of lending is quite fast and where eventual risks begin to accumulate.

In conclusion, the monitored data confirm the continuation of the rapid credit growth, which supports a further increase in the countercyclical surplus. However, considering that an increase was realized in the previous quarter and to ensure a better decision-making support on the most stable data, the Bank of Albania has decided that the countercyclical capital addition rate will be confirmed this quarter as well the 0.25% level.

However, the Bank of Albania emphasizes that, if the data of the rapid growth of lending will be confirmed in the coming months, the further increase of the countercyclical surplus at the end of the year has a high probability.

According to the Bank of Albania, the capital adequacy ratio of the banking sector in the middle of this year reached 19.3%, from 19% in the same period last year. The minimum requirement of this ratio ranges between 15% and 21%, depending on the regulatory obligations that individual banks have. Capitalization requirements are higher for the group of systemically important banks./ Monitor.al