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Banks' exposure to the property market increases, 46% of loans secured by real estate

Politiko 2025-05-09 08:56:47

Banks' exposure to the property market increases, 46% of loans secured by

The coverage of bank loans with collateral increased further last year. Bank of Albania data shows that at the end of 2024, 76% of loans were covered by collateral, up from 75% a year earlier.

The most widely used type of collateral by banks continues to be real estate. Properties cover 61% of collateralized loans and 46% of total loan outstanding.

According to the Bank of Albania, the stock of loans collateralized with real estate has expanded by 9% compared to a year earlier, as a result of the increase in loans collateralized with residential real estate.

The high level of collateralization of loans with real estate makes the banking sector exposed to developments in the property market. A possible decline in property prices would create increased risks for the health of the banking sector in the country.

To this end, the Bank of Albania has been collecting more detailed data since last year, based on the regulation “On reporting data, identifying and monitoring indicators on lending and investments in real estate”. It aims to improve the data to be collected by banks on their exposure to the real estate market.

Two days ago, the Supervisory Council of the Bank of Albania imposed some restrictive measures on bank loans for homes. According to the decision, the ceiling loan-to-value ratio in Lek will be 85% for the first home and 80% for the second home, while in foreign currency 75% for the first home and 70% for the second home.

Meanwhile, due to the rapid growth of real estate lending, the Bank of Albania applied a special capital surcharge to the banking sector for the first time last year. The countercyclical capital surcharge was first set in June at 0.25% (to be implemented from 30 June 2025) and increased in December to 0.5% (to be implemented from 31 December 2025).

The application of a countercyclical capital buffer is provided for in the 2018 regulation “On Macroprudential Capital Buffers.” Such a buffer is intended to slow down lending if the central bank assesses that growth is occurring at an excessively rapid pace.

In the analysis of the Bank of Albania, for several quarters, the Albanian economy has been experiencing a positive financial cycle based on accelerated growth in bank credit, and such periods are associated with good levels of financial performance for real economy agents and the financial system.

However, according to the Bank of Albania, these periods are also associated with the onset of certain risks, which may be related to a decline in lending standards, an increase in its concentration levels in certain sectors or markets, and an increase in debt levels for real economy agents beyond healthy levels.

 These situations, if allowed to develop, could make the economy and the financial system more vulnerable to various shocks, thus undermining financial stability. For these reasons, in these cases, it is suggested to use macroprudential instruments that act countercyclically and prevent the uncontrolled development of these risks./MONITOR

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