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Lek loans are tightened, interest rates reach the highest level since 2018

Politiko 2022-10-31 08:15:22

The increase in interest rates in the financial market is beginning to be reflected in the price of new loans in Lek. Bank of Albania data show that in September, the average interest rate for new loans in Lek reached 7.07%, the highest level since February 2018.

Currently, the average interest rate of new loans in ALL has increased by 1.18 percentage points compared to a year ago and by 1.6 percentage points compared to March of this year, when the Bank of Albania started monetary normalization. The growth has started to take on stable characteristics, especially after the month of July, and the average interest of new loans is increasing already for the third month in a row.

Meanwhile, for existing borrowers who have loans with variable interest, the increase in rates is transmitted automatically, through the benchmark indicator, which in the case of the lek is usually the average yield of treasury bonds. From March onwards, yields have been rising at a rapid pace. The most used benchmark instrument, 12-month bonds, in October were issued with a weighted average yield of 5.26%, increasing by 3.56 percentage points compared to the same period a year ago. The increase in yields is automatically transmitted to borrowers, in the reassessment of the loan interest rate, which is carried out at least once a year. But now, the banking sector seems to be reflecting the increase in the basic interest rate and yields in the interest rates of new loans.

After a long period when interest rates in the financial market remained close to historical lows, the price crisis and the rapid increase in inflation have caused central banks to begin a rapid monetary normalization. The base interest rate has increased from 0.5% to 2.25% over six months. The increase in the base rate by the Bank of Albania increases the price of injecting money into the system. With the increase in the cost of their short-term financing with REPO from the Bank of Albania, the banks reacted by increasing the yields required to finance the government debt. Meanwhile, high inflation and the signals given by the Bank of Albania created strong expectations for the continuation of the increase in the base interest rate, encouraging an increase in yields even higher than that of the base rate, especially in short-term instruments.

Such a situation is creating incentives to transmit the increase in interests to deposits and bank loans as well. The rise in yields increased the pressure on deposit interest rates, because bonds and bonds are becoming a more affordable option for individuals, which may lead them to withdraw money from deposits and invest it in bonds. With the increase in the interest rate of deposits, which has already started to appear, banks are gradually increasing the interest rates of loans, in order to maintain their intermediation margins.

At the moment, the follow-up in the interest rates of new loans is slower, but the market is already giving clear signals that it has started to move in this direction.

Nga ana tjetër, rritja e fortë e yield-eve të bonove përfaqëson në vetvete një faktor shtesë që nxit rritjen e interesave për sektorin privat, për shkak të logjikës së riskut. Investimi në borxhin e qeverisë konsiderohet investimi me risk më të ulët, ndërsa çdo huamarrës privat teorikisht ka një rrezik më të lartë se qeveria. Edhe nga pikëmamja teknike, instrumentet e borxhit të qeverisë në lekë për bankat peshohen me koeficientë rreziku 0, për efekt të llogaritjes së mjaftueshmërisë së kapitalit. Kjo do të thotë se investimi në bono nuk kërkon mbulim me kapital, ndërsa dhënia e kredive për sektorin privat ka një kosto për bankat në terma të kapitalit. Rrjedhimisht, logjika e investimit dikton që rritja e yield-eve të reflektohet edhe në normat e interesit të kredive të reja për sektorin privat.

The increase in loan interest rates is expected to gradually bring about a slowdown in lending. This means less injection of money into the economy, slowing down consumption, investments and domestic demand and softening inflationary pressures, which essentially represents the goal of monetary policy in this situation./Monitor