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The non-performing loan ratio declined again in December and closed 2021 at 5.65%.
According to the information of the Bank of Albania, this is the lowest level of non-performing loans ratio since November 2008.
For the calendar year 2021, the non-performing loan ratio marked a decrease of approximately two and a half percentage points. It is estimated that at the end of 2021 the Albanian banking sector had approximately ALL 40 billion or EUR 330 million in bad loans.
In the first year of the pandemic, the non-performing loan ratio resisted at stable levels, also thanks to administrative measures to manage the situation, such as deferring payments or restructuring loans, without deteriorating the status of the borrower. While during 2021, the rapid recovery of the economy has played an important role in maintaining the quality of the banks’ portfolio.
The non-performing loans ratio is marking a steady decline since 2016, when it reached a peak near 25% levels. A decisive impact on this decline was initially the regulation of the Bank of Albania, which obliged banks to write off loans classified as lost for more than three years. In early 2020, this term was further shortened to two years. During the period January 2015 – June 2021, banks have written off from their balance sheets about ALL 70 billion in bad loans.
For the most part, these deletions belong to the first years of the adoption of the regulation, while during the last year the figures are estimated to have been quite low. However, since the process of writing off credits is carried out especially before the closing of the annual balance sheet, this factor may also have had some impact on reducing the non-performing loan ratio for the month of December.
In the last two years, the increase of the total loan portfolio, especially related to the positive performance of the new lending, has had a positive impact on the reduction of the non-performing loan ratio. At the end of November 2021, the total loan portfolio for the economy reached ALL 658.5 billion, with an annual increase of 10.5%.
In 11 months, banks disbursed about ALL 223 billion in new loans, 9.7% more compared to the same period of 2020 and approximately 4% more compared to the same period of 2019. In the progressive growth of annual credit for the year 2021 the main contribution has come from households, where new credit has increased by 38% compared to the same period last year. The increase has come especially from real estate loans, where lending last year reached historic highs.
The increase in lending and the decrease in the non-performing loan ratio are also having a positive effect on the financial results of the banking sector. The data of the Bank of Albania show that for the 11-month period 2021, the net profit reached the value of about ALL 19.15 billion, with an increase of 33.5% compared to the same period of the previous year. Reducing bad loans has a very significant impact on financial results, because it brings less costs in the form of provisions, positively affecting the profitability of banks./ Monitor
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