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Credit in Euro is returning to rapid growth. Data from the Bank of Albania show that in the last four months the banking sector provided 365 million Euros in new loans, a record figure for at least the last seven years.
Compared to the same period last year, new credit in Euro increased by almost 57%, an increase significantly higher than the average growth of 37% of new credit in total, for the same period.
According to the statistics of the Bank of Albania, at the end of April, the share of the loan portfolio in Euro to the credit to the economy reached 46.5%, while a year ago it was around 45.5%. Credit in Euro has returned to growth since 2021, driven by several factors.
First, Euro deposits in the banking sector after the pandemic have grown rapidly. According to the Bank of Albania, at the end of April, the banking sector administered total deposits at a record value of Euro 5.57 billion, an annual increase of 19%.
This growth is more than twice as high as the average growth of deposits in the economy. The fact that deposits in Euro are expanding at a faster pace than those in Lekë significantly affects the investment and lending policies of the banking sector.
On the one hand, banks have restrictions on open positions in foreign currency, which means the degree of mismatch between liabilities and assets in a given currency. This means that deposits accepted in Euro are mainly held and invested in Euro.
Banks that have large liquidity surpluses in Euro keep or invest them in accounts or financial instruments abroad, as well as try to invest as many of them in the Eurobond issues of the Albanian government.
The increase in yields in international markets in recent quarters has had a negative impact on the value of portfolios of financial instruments held for sale, especially during the first quarter of the year.
High uncertainty related to interest rate movements may prompt banks to try to invest more of their free funds in Euros to provide domestic loans. An example is that of the National Commercial Bank, which in the first quarter of this year launched a home loan campaign in Euro, with very aggressive interest rates.
Another factor that is driving Euro lending this year is rising import prices. A good part of importing businesses take loans directly in European currency to cover the needs for buying goods abroad. A typical example was the large value borrowing of OSHE group companies, especially in the last quarter of last year.
In the framework of the de-euroization strategy, in 2018 the Bank of Albania decided to increase the required reserve ratio to 12.5% (from 10% previously) for foreign currency liabilities when they account for less than 50% of the total and 20% (from 10% that was before) for the share of foreign currency liabilities over 50% of the total. Such a measure, indirectly, increases the costs of foreign currency funds and makes foreign currency lending more expensive.
Since the credit in Euro for borrowers with income in Lek is exposed to exchange rate risk, since 2011 the Bank of Albania has been applying coefficients in calculating the value of risk weighted assets, on which the sufficiency ratio is calculated. of capital. Also, from 2011, foreign currency loans, data on borrowers exposed to exchange rate risk should not exceed 400% of the value of the bank’s regulatory capital. Any value above this level is deducted from the value of regulatory capital.
Despite the above regulatory measures, lending in Euro has returned to growth.
This fact first reflects the high degree of Euroization of the economy and the financial sector, as well as the difficulty of combating this Euroization only with measures addressed to commercial banks.
For almost two years, the Bank of Albania has been asking the government to consider measures to reduce the use of foreign currency in the real sector of the economy. But, so far, the Ministry of Finance and the Albanian Government have not reacted to these recommendations.Monitor
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