Bad loans led two Albanian banks to lend in neighboring countries

In the last three years, Albanian banks have significantly increased lending outside the country, something that has stirred debate, at a time when lending to the domestic economy is still very weak.

According to data from the Bank of Albania, the credit surplus to non-residents at the end of 2016 amounted to ALL 67.8 billion or about 500 million euros.

As the Bank of Albania has explained, lending to non-residents is concentrated in only two commercial banks and a few countries in the region, mainly in Kosovo.

Lending abroad can be explained by several factors, but the most important is credit risk, which is clearly illustrated by comparative levels of non-performing loans ratio.

At the end of last year, the banking system had a non-performing loan ratio at the level of 18.4%, the second highest in the region after Serbia.

If we have a look at the level of non-performing loans in other countries, we can understand why some Albanian banks have increased lending in markets like Kosovo.

For the past year, Kosovo had the lowest level in the region of non-performing loans, with just 6.2% of the total.

Macedonia is not lagging far behind, and the non-performing loans ratio there was at the level of 7.2%.

In the conditions where these markets represent a low risk, it is understandable that banks such as Raiffeisen and BKT may be tempted to lend there.

This is especially true for businesses, which are the most problematic segment of lending in Albania.

At the end of last year, the ratio of non-performing loans to businesses was 21.4%, and this level is significantly higher than the average of 18.4% for the entire loan portfolio.

Failures and problems specific to a number of large corporations in Albania have narrowed the room for a healthy lending in the domestic market.

For this reason, some banks are seeking alternative investment opportunities abroad, assisted by the high growth of deposits in foreign currency.

SCAN

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