The ratio of non-performing loans falls again in September, reaching the lowest level in 16 years

The NPL ratio saw another slight decline in September. According to data from the Bank of Albania, this indicator fell to 4.58%, from 4.61% in August and 5.24% in the same period a year ago.

The ratio of problem loans has thus touched a new minimum level for the last 16 years. However, considering the relatively high growth rates of the loan portfolio this year, the decrease in the ratio of non-performing loans appears to be modest. This is an indication of the fact that the stock of non-performing loans has increased and is following the expansion of the loan portfolio.

At the end of September, the total loan portfolio for the economy reached the value of ALL 813 billion, with an annual increase of 12%. Above this value, the total number of problem loans is estimated at approximately 37.2 billion ALL, from around 35 billion ALL at the end of 2023.

This shows that, in absolute terms, bad loans have increased by ALL 2.2 billion or approximately 6.3% since the beginning of the year.

The loan portfolio for the economy this year is growing at the fastest pace since 2008. The loan growth is supported especially by a significant acceleration of lending to businesses. In this segment, annual growth has reached 13%, while loans to individuals continue to grow at a steady rate, with 11.7% compared to the same period a year ago.

According to the purpose of the loan, the growth is supported especially by the loan for real estate of businesses and individuals.

The acceleration of credit growth and the expansion of exposure in the real estate market has raised the concern of the Bank of Albania. In the middle of this year, the Central Bank decided to apply for the first time a countercyclical addition to the capital adequacy ratio of the banking sector, with 0.25 percentage points. In fact, in October, the Bank of Albania warned that, if lending continues to expand at the rates of the last few months, the further increase of this rate at the end of 2024 has a high probability.

The application of a countercyclical capital supplement is provided for in the 2018 regulation "On macroprudential capital supplements. Such an addition is aimed at slowing down lending, in case the central bank estimates that it is growing at too fast a pace.