An Outline of Loans’ Trend in Albania

Abstract

The early 2000`s epitomized very low levels of loans in Albania. The combination of imposition of stringent credit ceilings and the high and rising number of non-performing loans caused the commercial banks to have difficulties to meet the soaring demand for credit. Bank of Albania imposed low credit ceilings, artificially lowering the ability of the banks to provide loans despite having healthy deposit reserves. In 2001 the situation changed dramatically however, as a result of the administrative decision to transfer the bad loans from the Savings Bank to the Loan Handling Agency. This led to a changed financial picture overnight and a greatly improved NPL situation, by wiping out most of them as far as the banking sector was concerned. The Albanian economy had a boom in credit growth particularly after 2004, especially in foreign currency lending. It still remained less than what it should have been, due to low ratio of loans, compared to deposits level. The credit crisis of 2008 saw a decrease in lending, and 2009 saw an even greater deterioration. Nowadays supply has tightened, with banks making it more difficult to request loans, and the demand has decreased as well, with businesses reluctant to take on risky investments, indicating a lack of confidence in the Albanian economy and uncertainty about the future, especially in sectors such as construction, that are regarded as highly important to the overall performance of the economy.