The Bank of Albania expects the ratio of non-performing loans (NPLs) of the banking sector to increase to 10% by the end of the year.

The representatives of the bank’s supervision department estimate that the expectations for the growth of NPLs this year are significantly lower than the initial projections, at the moment when the economy and the banking sector were affected by the effects of the pandemic.

At that time, the Bank of Albania forecast was that the NPL ratio could reach up to 15%. But, in fact, this indicator over the past year proved to be stable, while in the first half of the year it is marking even a slight decline.

In general, the forecast of the Bank of Albania is similar to that of the managers of commercial banks. Speaking for local news provider Monitor, their forecasts matched for a maximum increase of no more than 2 percentage points of NPL ratio during this year.

In the analysis of the Bank of Albania, the temporary easing measures, which allowed the banks to restructure the loans without deteriorating their status, helped in stopping the increase of NPL ratio. But equally important were the pandemic management measures.

In autumn last year, the Albanian government decided not to apply drastic restrictive measures, which would have had an inevitable effect on curbing economic activity and consequently on the solvency of businesses and households. Another important factor in keeping the NPL ratio under control was the good lending performance, starting from the middle of last year. This has helped the ratio remain stable with a slight downward trend, despite the fact that bad loans in value increased. In addition to the arithmetic effect in this report, by increasing the total portfolio, the new lending has also helped the continuity of activity and maintaining the solvency of businesses.

According to the statistics of the Bank of Albania, at the end of April this year, the NPL ratio was at 7.88%.

The ratio of NPLs to businesses has not marked a significant increase since the outbreak of the pandemic. However, the consequences for this contingent of borrowers will probably appear starting in the middle of this year.

The performance of the business segment remains decisive in the quality of the bank loan portfolio, because this segment accounts for more than 60% of the total loan to the economy.