The year 2025 is closing with lower profits for the banking sector

2025-12-23 22:56:51, Ekonomi CNA

The year 2025 is closing with a declining profitability of the banking sector in the country. Data reported by the Albanian Association of Banks show that for the first 10 months of 2025, the return on equity (profit in relation to equity) for the sector was at 15.86%, down from 18.51% in the same period last year.

Return on assets (profit in relation to assets) also appears to be declining, at 1.63%, from 1.88% a year earlier.

Even the absolute profit of the banking sector for the first 10 months of 2025 is down 7% compared to a year earlier, for a total value of 29.2 billion lek.

The main reason for the decline in bank profits is the peaking of the effect associated with the rising interest rate cycle on bank balance sheets.

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. This trend has continued in 2025.

Since government securities are also a benchmark in private sector lending, the increase in interest rates is also reflected in loans in local currency.

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.

Bank of Albania data showed 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 banking sector's net interest income is declining for the first time since 2019.

On the other hand, pressures on banking activity costs remain high. Personnel expenses during the 9-month period of 2025 reached more than 14.4 billion lekë, up 12% compared to the same period of 2024 and at the highest level ever recorded for this period of the year.

Meanwhile, other operating expenses of banks also increased significantly by 15.4%, reaching a total value of 27.8 billion lek. The increase in prices in recent years in the services segment seems to have significantly affected the expenses of commercial banks.

An important effect is also estimated to have been the increasing need for spending related to digitalization and cybersecurity./ Monitor.al