Non-bank financial institutions must erase bad loans after first year: BoA

Non-bank financial institutions have to erase remove non-performing loans that have not been paid regularly for a year.

The Bank of Albania has prepared some amendments to the regulation “On risk management in the activity of non-bank financial institutions”.

The changes proposed by the Bank of Albania will force these institutions to issue non-performing loans as they are classified as lost, which, according to the regulation, occurs when the loan is not paid since 365 days.

A similar decision has been taken by the Bank of Albania for banks, but with the change that in the case of banks the erasing of the loan is obligatory after three years.

For non-bank institutions a faster depreciation is anticipated, given that the loans are generally lower and assumes that the lender must have exhausted all ways of paying the liability within one year.

This regulatory change is expected to affect the reduction of non-performing loans for non-bank financial institutions.

The draft regulation also provides that financial institutions may increase capital through subordinated debt, with a maturity of at least five years.

Subordinated debt may account for up to 50% of any financial institution’s capital.

Another change is that financial institutions will be allowed a higher exposure limit to a licensed bank or any other financial institution.

According to the current regulation, exposures with a term longer than one year can be reduced by 20% of the value, for the purpose of calculating the maximum allowable limit.

The new regulation states that this exposure can be reduced by 80% of the value.

This creates the space for non-bank financial institutions to invest more in long-term instruments, such as deposits, bonds, or even genuine loans in banks and other institutions.

SCAN

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