Deposit interest rates, modest increase for 2023

2024-03-19 08:25:00, Ekonomi CNA

Interest rates on deposits increased by a small amount for the past year.

Bank of Albania statistics show that for the month of December 2023, the average interest rate of new deposits in Lek was 1.64%, from 1.43% at the end of 2022.

The inhibition of interest rate increases by the Bank of Albania and the drop in yields reduced the incentives for the increase of interest on bank deposits for most of last year.

The basic interest rate in Albania has been restrained at the level of 3.25%, among the lowest in Europe.

The interest rates of new deposits reached an increase especially after the month of August and reached the highest annual level in the month of November, at 1.78%.

This can be explained by the stagnation of local currency deposits and the narrowing of the banking sector's liquidity surpluses during most of 2023.

An important role in this coercion was played especially by the coercive fiscal policy followed by the Albanian government. Only after November, with the increase in public spending, bank deposits returned to growth.

However, even the growth of loan interest in Lek last year was limited.

According to statistics from the Bank of Albania, the average interest rate of the loan portfolio for the purchase of housing by individuals in Lek currency in December last year was 4.85%, only 0.2 percentage points higher compared to the end of 2022.

Deposit interest rates, modest increase for 2023

These figures prove that the Bank of Albania's monetary policy has helped maintain favorable prices for lending to the economy, but on the other hand, it has not provided many incentives to increase savings and benefits from them.

A similar growth rate of deposit interest rates last year was also recorded for the Euro currency. According to the Bank of Albania, the average interest rate for new Euro deposits in December was 0.99%, from 0.71% at the end of 2022.

The increase in interest on deposits in Euro has not followed much the pace of the increase in interest rates on deposits in the European markets. The European Central Bank (ECB) last year followed an aggressive monetary policy and increased the base rate to the highest historical level of 4.5%.

However, in the Albanian market, monitoring the movements of the ECB's monetary policy has been quite limited. This can be explained by the high supply of funds in Euro and the lack of financial investment alternatives in this currency.

Deposits in the European currency increased by more than 6% last year. On the other hand, the low interest rates in Euro are also related to the regulatory policies of the Bank of Albania.

The central bank does not pay banks remuneration for the forced reserve in this currency, except that it requires a higher level of this reserve, compared to the Lek.

This increases the costs of intermediation in Euro for the banking sector and directly affects the maintenance of lower interest rates for deposits./ Monitor.al