The banking sector closed the first five months of the year with a net profit of ALL 7.9 billion. The profit of the sector is significantly higher compared to the same period a year ago, with about 56% more and approximately at the same level as in the first five months of 2019. 

The return on equity of the banking sector, averaged on an annual basis at the end of May, was 11.57%, from 7.79% in the same period last year. As of December 2020, the return on equity of the system is at double-digit levels and close to the average of the last five years. The average return on assets also improved to 1.26%, from 0.88% a year earlier. 

Profit data are based on the reporting standards applied for supervisory purposes by the Bank of Albania. Earnings according to International Financial Reporting Standards, which are also the legal reporting standard for banks, are not published on a monthly basis. However, the financial result of the two standards may have significant differences, due to the different principles followed in calculating reserve funds for losses on non-performing loans. 

The increase in the profits of the banking sector during this year primarily reflects a positive performance of the non-performing loans indicator, which has continued a slow but steady decline in the first months of this year. According to the Bank of Albania, at the end of May, this ratio marked the level of 7.8%, from about 8.2% in the same period of the previous year. The reduction of non-performing loans means fewer expenses for provisions, which usually have the main impact on the short-term fluctuations of commercial banks' profits. 

On the other hand, during this year the sector has shown an improving performance also in terms of the revenue base. Banks have increased their commission income compared to a year ago when severe restrictions on movement and business hours also led to a significant decline in banking operations in branches and agencies. 

Net interest income is growing, thanks to the expansion of the asset base, which is reflected in the growth of the loan portfolio and investments in securities. On the other hand, interest expenses are declining, a phenomenon especially related to the shift of savings mainly to demand deposits and current accounts, where interest rates paid by banks are even lower.