The banking system records the biggest decline in 10 years

The banking system has failed to return growth in the first six months of this year, not being in a line with the acceleration of economic growth, which expanded by 4.45% in the first quarter of the year, according to INSTAT. Official data from the Bank of Albania shows that the active ones have marked the strongest decline of the last 10 years, especially in the first quarter (i.e. and the fall of the euro), the loan has stalled, deposits are in reduction. On the other side, the profit index was stable as loans Problems are in constant decline.

Sales are at their peak, and the number of banks is expected to be reduced from 16 to 14.

Efforts by the Bank of Albania to lower the high level of use of the euro in the economy, launched in February, have yielded little effect in terms of credit, but not in deposit, while the euro follows to be the favourite of savings.

Activations in a hard decline

At the end of June, total banking system active amounted to $1.43 trillion, according to statistics from the Bank of Albania. In relation to the end of 2017, active ones have contracted 1.3%, or 18 billion dollars (the strongest reduction was in the first quarter of 13.5 billion dollars), marking the biggest decline since the end of 2008, when the banking system suffered a flow of deposits as a result of the fear of the global financial crisis that erupted at the time. The effect has also generated the depreciation of the euro.

Two are the main voices that have influenced this negative trend of active or indicators showing how banks invest deposit money.

The first is “Relations with Central Bank”, while banks have reduced the money they keep in the central monetary institution by 24 billion dollars in the first six months of the year.

Second, it is the voice of “Operations with customers (bluto)”, which has dropped 19 billion dollars. This voice shows the real performance of the loan for the economy, as it is stripped of the effect of eliminating loans. His skin is most influenced by the decline of short-term loans.

Real credit for the economy has been marking decline since the third quarter 2017.
Otherwise, it has been the tendency of money that local banks place out at “Deposit in banks, credit institutions and other financial institutions”. This voice has grown 13 billion dollars in the first six months of 2018, in relation to the end of 2017.

Credit check

The budget of the loan for the economy has marked decline in the first six months of this year, not reflecting at all the country's growth, which in the first three months of the year, according to INSTAT, expanded by 4.4%. According to statistics from the Bank of Albania, the economy loan stock in June dropped to $530 billion, with a $3.3 billion contraction, or 1.7% compared to the previous month.

The decline has been unstoppable in the first six months of this year, shrinking by 20 billion dollars. This is the biggest historical contraction, at least since 2002, when the Bank of Albania reports credit statistics.
This is the lowest level of debt stock for the economy since October 2011.

The June withdrawal has resulted from a drop in the loan for public corporations, with a total of 12 billion dollars, as a result of the write-off of KESH's overdraft to banks, following the release of loans from the European Bank for Reconstruction and Development.
While in relation to the end of 2017, the loan contraction has resulted from declining currency loans for businesses, but also individuals. Nor has the credit stock for businesses marked growth, on the contrary.

The only ones preferred to be loaned by banks are individuals in local currency, mainly for buying real estate.
Since September 2017, the economy is resulting in significant decline. Banks are skeptical of lending as they concentrate on the medium segment and complain that good financial projects are lacking. Other reasons that have affected the decline of the stock have been cancelling loans that have not returned for more than three years, as well as the humiliation of the euro.

Even the new loan for the 6-month month is on the decline, with 3.1%, in a report with January-June 2017, according to data from the Bank of Albania, where there were overdrafts and circulation capital in money, euro equipment purchases and housing purchases in euros.
The currency credit account has dropped for the first time below the 50% total limit in June 2018 (49.8%), down from 50.7% in the same period a year ago. The management of banks to promote the loan in cash seems to have affected this tendency.

Deposit finally on the rise, from... currency

According to statistics from the Bank of Albania, the total deposit in the banking system at the end of June amounted to 973 billion dollars, increasing 5 billion dollars, or about 0.5% compared to the previous month. This is the first increase in seven months in a row that savings had only marked decline.

Despite efforts by the Bank of Albania to discourage savings in euros, they have returned to growth in June, led by individuals. Money savings increased by only $860m in terms of May, while individuals continue to reduce money savings. Funding deposits have continued the increase that has started for nearly 7 years since the Bank of Albania started lowering the basic interest rate, which was associated with lowering the return rate from deposits, currently less than 1% per year for 12-month deposits.

In contrast, currency savings increased by 4.1 billion dollars in May compared to the previous month, as a result of the return of individual depositors. The weight of deposits in currency, in late June, was 52.8%. Since February, the Bank of Albania launched a campaign for deeuroisation of the economy to discourage the use of the euro, but again the common currency remains the favourite of Albanian savings.

Compared to December of last year, total deposits have been lowered by $28 billion, or about 225m euros, where half the decline has resulted from currency and half from money savings.
Albania is estimated to have the highest savings rate in the region. At the end of June, they were equal to about 60% of the Bruto Interior Production, up from about 40% of the region's average. However, compared to a few years ago, when deposits in Albania were about 70% of GDP, there is a visible decline.

Troubled Loan, Falling

Unturned credit in the bank deadline has marked further declines in June, dropping to 13.27%, down from 13.31% they had been in the previous month. This is the lowest level of this indicator since December 2017, when troubled loans reached 13.3%, while the indicator had not dropped 14% since 2010.

Albania's “Banca finds that the drop in credit risk and continued improvement of balances, as illustrated by the drop to 13.27% of the troubled credit report, should find better reflections in banking sector lending policies”, the governor of the Bank of Albania, Gent Sejko, has stated at the latest press conference. He added that, in general, credit growth is in line with moderate improvement in demand. However, monitoring lending activity suggests that standards and credit conditions applied by the banking sector continue to remain conservative.

In absolute value, the credit not returned to banks at the end of June was 70 billion dollars (558m euros), down from 74 billion dollars in January, with a 5% drop. Despite the decline, unturned loans to the Albanian banking system remain the highest in the region. According to the European Commission's recent report on candidate countries, in the first quarter of 2018, the level of credit with problems (NPL) in Albania remained stable at 13.4% of the total loan, following a falling trend in 2017.

In Serbia, which once headed the region, NPLs have dropped to 9.2%, the lowest level of the decade. Montenegro has also reduced the troubled loans to 7.3%. All three states -- Albania, Serbia and Montenegro -- had until two years ago the NPL index exceeding 20%, but following strategies that followed to reduce ailing loans, this indicator was significantly reduced, but at a higher rate in Serbia and Montenegro.
In Bosnia and Herzegovina, 9.7% of loans are unturned in terms, in Macedonia 6.5%. In Kosovo, this indicator is only 3.1%, out of 8.7% in 2013, according to figures published by the European Commission.

Benefit Index

The winning of the banking system in the first six months of the year was 11 billion dollars, according to statistics from the Bank of Albania, which reports on national accounting standards. Compared to the same period in 2017, the profit dropped slightly by 4.2%. A year's profit for the same period had increased by 127% as a result of retaking provigjion spending.

The low-interest environment is affecting the failure to reach bank revenues, while the reduced credit problems have facilitated banking projections, which in recent years have been the main factor that had contributed to the decline of profits. The profitability indicators were easily exacerbated in the first 6 months 2017.
Return from the active was 1.2% on average for the first 6-month 2018, down from 1.4% in the same period a year ago. The return from the active was 10.96%, out of the 15% this indicator for January-June 2017 had resulted.

According to Bank Association data, which reports by international standards (on the basis of taxes also paid), bank profit was halved to $5.6 billion for the first 6-month 2018, in proportion to January-June 2017. The difference between the two standards lies in the way the procedures are conducted (the statements banks set aside for troubled loans). The two main banks -- BKT and Raiffeisen -- result in half the profits, according to the Bank Association/Monitor