Lending to the construction sector increased for the fourth consecutive year in 2024 and reached a historical high.

According to data from the Bank of Albania, the banking sector disbursed new loans to the construction sector worth Lek 48.6 billion, up 22.7% compared to the previous year.

However, the broad-based growth in business lending last year has caused the weight of construction to total new business credit to decline.

New construction credit accounted for 16.8% of all new business credit granted by the banking sector last year, down from 18.2% a year earlier.

Construction was the second most credited sector in the Albanian economy, after trade. The outstanding construction loan at the end of December reached Lek 77.9 billion, up 7% compared to a year earlier.

Construction loans have marked a new growth cycle after the pandemic, driven by developments in the real estate sector, especially in the capital and the coast.

Based on INSTAT data, last year the value of building permits for buildings, including reconstructions, was around Lek 91.8 billion, up 13.4% compared to the previous year. The increase in construction investments has been supported by high demand, particularly related to purchases by non-residents and the expansion of accommodation capacities for foreign tourists.

According to the Bank of Albania, in the middle of last year, the Fischer index of housing prices marked an annual increase of 16.9%.

The increase in prices seems to have also encouraged the banking sector to support investments in this sector. However, a significant part of the portfolio is not related to the financing of buildings, but to that of infrastructure investment projects. Thanks to a very positive financial performance in recent years, the banking sector has increased its risk appetite and is also appearing ready for large exposures in corporate loans.

The rapid growth of credit, on the other hand, is worrying the Bank of Albania. Last year, the Governor, Gent Sejko, also decided to apply a countercyclical surcharge to the banking sector's capital adequacy ratio for the first time. A surcharge of 0.25 percentage points was first imposed in June 2024, while at the end of December a further increase was decided, bringing the countercyclical surcharge to 0.5%.