The ratio of non-performing loans starts the year 2024 with a slight increase

2024-03-11 15:50:00, Ekonomi CNA

The NPL ratio started 2024 with a slight increase.

According to data from the Bank of Albania, for January this indicator increased to 4.88%, from 4.74% at the end of December. However, the ratio of non-performing loans continues to be at lower levels compared to the same period a year ago, when it was 5.1%.

In part, the increase in the ratio of non-performing loans can be explained by the contraction of the total loan portfolio for the economy during January, by three billion lek less compared to December.

However, at the moment the ratio of non-performing loans remains at controllable levels and the negative effects of the economic slowdown and the increase in interest rates have been small.

The data available so far shows that the Albanian economy grew by approximately 3.1% for the first nine months of 2023. Beyond what the official statistics show, the tourism sector is estimated to have had a significant effect on the demand for goods and services and in the health of the private sector of the economy, although this effect may not be fully visible due to high informality.

It is believed that the small increase in interest rates by the Bank of Albania during the past year, but also the strengthening of the Lek in the exchange rate, had an important impact on keeping the ratio of non-performing loans under control.

The Bank of Albania raised the base interest rate only twice in 2023 and the level of 3.25% is among the lowest in Europe, far from the rates applied by central banks in Europe and the region. This kept loan yields and interest rates at low levels, even largely correcting the strong growth of late 2022.

The first data of 2024 are showing a further decline in inflation. For February, annual inflation fell to 2.6%, falling below the Bank of Albania's 3% target for the first time since October 2021. Such a development for the moment rules out a further increase in interest rates. Consequently, expectations for an increase in borrowing costs now seem more remote.

The non-increase of interest rates is an optimistic expectation for the continuity of lending to the economy at satisfactory rates. The loan portfolio at the end of last year recorded an annual growth of 4.2%, despite the statistically negative effect of the exchange rate. The expansion of the loan portfolio is a factor that has a positive impact on keeping the specific weight of the portfolio of non-performing loans low./ Monitor.al