Home loan amounts to 26% of the total

The home loan increased for the fourth year in a row in 2023. Bank of Albania data shows that the new home purchase loan reached a new historical record of 48.5 billion lek, or about 466 million euros.

New housing loans increased by 5.2% compared to 2022.

The value of the active portfolio or home loan surplus at the end of 2023 reached almost ALL 177.2 billion, with annual growth of 6.3%. The weight of the home loan to the total loan granted in the country has increased rapidly, from 19% at the end of 2015 to 26% at the end of 2023.

Growth rates have slowed compared to 2022, but this is partly due to the effect of the exchange rate and the devaluation of the Euro against the Lek.

The relatively low interest rates have caused the home loan to increase, especially in the local currency. The new home loan in Lek last year reached 30.2 billion Lek, an increase of 36% compared to the previous year.

Local currency credit accounted for more than 62% of new disbursements for this product.

During 2023, the Bank of Albania slowed down the process of monetary normalization and at the end of the year, the base rate in Lek was at the level of 3.25%, while in Euro it reached 4.5%.

The average interest rate of the loan portfolio for home purchase by individuals in Lek currency at the end of last year was 4.85%. This level is slightly higher compared to the end of 2022, but on the other hand it is the lowest recorded in 2023, proving that credit inflation was almost contained last year.

Meanwhile, the average interest rate of the loan portfolio for the purchase of housing by individuals in the Euro currency reached 5.2% at the end of last year, from 4.55% at the end of 2022.

In the Euro loan, a gradual increase in rates was observed, reflecting the monetary tightening of the European Central Bank and the increase of Euribor.

The data show that even in the first months of 2024, home loans are continuing to grow, despite the fact that for two years the economy has entered a gradual cycle of monetary tightening.

Low interest rates have made home loans attractive to borrowers, while at the same time, the cycle of rising real estate prices in recent years has also increased the demand for home loans from households, increasing the perception that buying a property it is a good investment for the future.

On the other hand, the increase in prices has influenced larger values ??of loans taken by individuals to buy apartments, contributing significantly to the increase in the general volumes of this product.

Developments in the real estate market and bank loans for properties are assessed with concern by the International Monetary Fund (IMF), which in the last statement on Albania suggested to the Bank of Albania the establishment of a countercyclical capital increase for the banking sector.

According to the IMF, the imposition of a countercyclical addition to the capital adequacy ratio for commercial banks may be considered in the medium term, to further strengthen financial stability.

The annual increase in bank credit, the annual change in bank credit for real estate, the annual change in the housing price index and the annual change in the housing price index to the rental value are summarized by the Bank of Albania in the Early Warning Indicator Index (TPHP).

At the end of 2023, the value of the TPHP index was 0.51, increasing from the value of the preceding quarter (0.49) and slightly above the comparative threshold value (0.5).

The performance of the real estate credit and housing price index sub-indicators, which tend to reinforce each other's performance, is closely monitored.

The goal is to identify and prevent situations in which price movements in the real estate market are unstable, using the information related to the debt burden of households.

The suggestions for the application of a countercyclical rate by the IMF seem to be based precisely on the early warning indicators and mainly on the developments in the real estate market and the credit given by the banks to finance their purchase. /Monitor/