The banking sector expanded the investment in Eurobonds of the Albanian government in 2023 as well

2024-02-23 08:12:44, Ekonomi CNA

The banking sector expanded the investment in Eurobonds of the Albanian

The banking sector further increased the investment in Eurobonds of the Albanian government during 2023. The data of the Bank of Albania show that the foreign currency securities of the Albanian government in the balance sheet of the banking sector at the end of last year reached the value of 83 billion lek . Compared to a year ago, the value of these assets has increased by 4%.

However, if we strip the growth from the effect of the exchange rate, it would turn out to be several times higher. At the end of 2023, the Euro-Lek exchange rate fell by more than 9% compared to the previous year. Adjusted for the exchange rate effect, the increase in banks' investment in Eurobonds would be around 13%.

The devaluation of the Euro, however, has caused the specific weight of the Albanian government's Eurobonds in the balance sheet of the banking sector to remain almost unchanged compared to the end of 2022, with 4.2% of the sector's total assets.

Meanwhile, including debt securities in lek, the total exposure of the banking sector to the Albanian government constituted 26.4% of the total value of assets, with a slight decrease compared to a year ago.

The banking sector expanded the investment in Eurobonds of the Albanian

The Albanian government issued the sixth Eurobond in June last year, with a total value of 600 million euros and a 5-year maturity. However, to a large extent banks' investments in Eurobonds are made through purchases in the secondary market.

The Albanian government's foreign currency debt instruments have attracted increasing interest from the Albanian banking sector in recent years, for several reasons. Investing in these instruments has provided satisfactory returns, during a period when interest rates for the euro currency have been very low.

In parallel, the high growth of foreign currency deposits during the last years has created significant amounts of free liquidity for banks. In December 2023, Euro deposits increased by 15.5% compared to the previous year.

On the other hand, lending to the private sector last year had a significant shift towards the Lek, due to lower interest rates. Many borrowers even decided to convert their loans from Euro to Lek, due to the favorable interest rates, but also the low exchange rate.

Even the regulatory framework of the Bank of Albania tends to make lending in foreign currency more expensive for entities with income in Lek, which limits the scope of credit growth in Eeuro for the Albanian private sector. In this way, in recent years, Eurobonds have also served as an instrument for absorbing free liquidity in foreign currency of the banking sector./ Monitor.al