More bad loans

Official data published recently by Bank of Albania show that bad loans reached 16.1% by the end of June, an increase of 2.19% within a trimester. With the recent figures, for every 100 ALL that the banks have provided as loans to individuals and businesses, 16.1% are lost money or have significant difficulties.

The total value of problematic loans in private banks reaches 85 billion ALL, or around 850 million USD, more than 6.5% of the national production. The second trimester of this year coincides with the local elections and the tense political environment they created, which seems to have affected the discipline of individuals and businesses who owe money to banks.

Despite the causes that brought this increase, the fact is that bad loans are not stopping, beyond all odds predicted by Bank of Albania for their stabilization in the second semester of this year. Unpaid debts are now turning into the key problem of the financial system for our country.

The Albanian banks might handle bad loans increase even at higher levels, due to the abundant liquidity and the low proportion between loans and deposits. But this cannot last forever. Furthermore, bad loans increase might have other consequences in the economy, by forcing banks to tighten loan criteria and increase interest rates in conditions when the investments and consumption level has decreased.

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