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New credit returned to growth for February, but total portfolio value is down again

New credit returned to growth for February, but total portfolio value is down

New credit for the economy increased in February. Data from the Bank of Albania show that the banking sector disbursed 19.2 billion new loans, an increase of 4.7% compared to the same period a year ago.

The balance of the first 2 months still remains in decline, determined by the performance of January. For the January-February period, banks granted a total of 35.8 billion ALL in loans, 4.8% less compared to the same period a year ago.

If we look at the figures of the new loan, it seems that to some extent it is resisting the increase in interest rates and the tightening of the supply. This trend is particularly visible in the segment of individuals, where the new loan has continued to grow for the second month of 2023. For the month of February, the new loan for individuals increased by 11.8% on an annual basis, while for the second month the increase it is almost 18%. The increase came mainly from the loan for the purchase of housing in euros.

In the European currency, the increase in interest rates has been more moderate, because the banking sector is very liquid in this currency, thanks to the high growth of deposits in euros. Also, the pressures to increase the cost of funds in euros have been a little easier, because clients do not have competitive investment alternatives, such as bonds and treasury bonds for investments in lek. In this way, the credit of individuals in euros seems to be continuing to grow, even in the inertia of the great desire of Albanians to invest in property.

The effects of the increase in interest rates are a little more visible in business loans, although there is no drastic drop in this segment either. New credit for private companies recorded a very slight increase in February, but for the 2-month period it is shown to be down by 2.9%. Even for businesses, the figures for the first 2 months show an increase for loans in euros, but a decrease for loans in Lek.

However, the interpretation of new loan values ​​should be done with some reservations, because the figures also include the refinancing of matured loans or the purchase of loans between banks. If a business moves its existing loan to another bank to benefit from more favorable terms, this is recorded in the statistics as a new loan.

In this regard, the stock of loans to the economy can provide more meaningful indications of lending trends. In fact, the loan stock fell again for the month of February, for the fourth month in a row. The portfolio shrank by about ALL 1.6 billion compared to January, while on an annual basis the growth has been reduced to 5.3%, from 7% at the end of January.

The contraction is appearing more sensitive in the business sector, where even the amortization of the existing portfolio has higher rates, due to a greater weight of short-term loans. At the end of February, the annual growth of the portfolio was only 1.35%. Meanwhile, the loan portfolio for individuals continues to grow, by 12% compared to the same period a year ago.

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