Banks' interest income falls for the first time since 2019

2025-11-27 22:32:38, Ekonomi CNA

The banking sector's net interest income is declining for the first time since 2019.

Bank of Albania data show that net interest income (interest income minus interest expenses) for the first 9 months of 2025 was worth about 55.8 billion lek, down 0.6% compared to the same period last year.

The decline in net interest income was due to interest expenses increasing to a greater extent than banks' interest income.

Interest expenses increased by 10.5%, driven by the continued growth of deposits, but also by increasing competition among banks to attract them.

On the other hand, gross interest income recorded a modest increase of only 1.6%.

These data indicate that the positive effect of the rising interest rate cycle on bank balance sheets appears to have ended.

After the inflationary shock of 2022, central banks rapidly increased base rates and this was positively reflected in interest income on banking sector assets.

But in 2024, central bank interest rates began to decline, which was reflected in the performance of benchmark indicators used by banks to quote loan prices, mainly Treasury Bills and Euribor. Such a trend has continued this year.

This has curbed the growth of interest income, while on the other hand interest expenses have been stable, driven also by increasing competition for public funds, especially from the most active banks in the lending market.

The monetary policy transmission mechanism generally has a faster transmission in the direction of banking sector assets than in that of liabilities.

The primary market for government debt instruments is the first to be affected by movements in the key interest rate. Since government securities are also a benchmark for lending to the private sector, interest rate increases are also passed on to loans in local currency. Meanwhile, the pass-through to deposit interest rates is usually more gradual.

While interest income has slowed, banking expenses have continued to increase during the first 9 months of this year. In total, non-interest expenses reached 42.2 billion lek, an increase of 14.4% compared to the same period a year ago.

The slowdown in net interest income and the increase in operating expenses are clearly reflected in the final result of the banking sector for the period.

The sector's net profit, according to the Bank of Albania's reporting standards, decreased to around 26.2 billion lek, 5.9% less compared to the same period last year./ Monitor.al