The home loan continues to grow, despite the warnings of the Bank of Albania

Home loans continued their annual increase during the month of July, despite the Bank of Albania's signals that lending, especially in this segment, may need to slow down.

According to the statistics of the Central Bank, during the month of July, banks gave about 4.1 billion new loans to finance the purchase of properties by families. The new loan increased by 50% compared to the same month last year.

For the first seven months of the year, the new home loan reached the historical record of 31.6 billion ALL, increasing by 17% compared to the same period a year ago.

Growth continues to rely especially on the very rapid expansion of credit in Lek. For the 7th month of 2024, the new loan in the local currency has increased by 77% compared to the 7th month of the previous year. Lek loans accounted for approximately 74% of the value of new home loans disbursed this year.

Low interest rates are believed to have had a significant impact on the shift of home lending towards the lek.

Not only new loans were granted more in Lek, but a good part of the existing foreign currency loans were converted to the local currency, to benefit from the lower interest rates, but also from the favorable exchange rate.

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 for the month of June decreased to 4.57%, while in the same period a year ago it was 5.22%. The average interest rate of the home loan portfolio in Lek has reached the lowest level since the end of 2022.

Meanwhile, credit in euros is falling rapidly and shrank by 40% for the first seven months of this year.

According to the statistics of the central bank, the active loan portfolio for the purchase of housing has already reached the value of 198.2 billion ALL, with an annual increase of 16%. This portfolio constitutes 26% of the total credit for the Albanian economy.

Credit provided by the banking sector continues to be an essential support for demand in the real estate market. According to the results of the survey for the real estate market, carried out by the Bank of Albania, the weight of properties purchased with bank loans in the second 6 months of last year reached 60%, from 40% that had been in 6 the first month of the year.

The rapid growth of credit in general and that for the purchase of real estate in particular seems to have reached the point where it is estimated that it may represent increased risk for the financial sector.

The International Monetary Fund (IMF) in January suggested to the Bank of Albania the establishment of a countercyclical capital increase for the banking sector. The suggestions for the application of a countercyclical rate were mainly related to the developments in the real estate market and the loan granted by the banks to finance their purchase.

The Bank of Albania reacted to these concerns at the end of the second quarter of 2024, applying for the first time a countercyclical addition to the capital adequacy ratio of the banking sector.

Even in the last Declaration of Financial Stability, approved by the Supervisory Council last week, the Bank of Albania emphasized that it is necessary to slow down the pace of growth in lending to the economy. / MONITOR