Oct 3, 2024 – Albanian banks are ramping up efforts to write off bad loans as part of a regulatory push aimed at reducing non-performing loans (NPLs). While progress has been made, challenges remain as businesses struggle with debt.
Albanian banks have written off a significant amount of non-performing loans in the first half of 2024, part of an ongoing effort to clean up their balance sheets. New data from the Bank of Albania reveals that a total of 1.4 billion lek (£11 million) in bad loans were written off by June this year, although at a slower pace than in previous years.
The push to remove bad loans from balance sheets is part of a broader regulatory initiative aimed at stabilising the sector. Over the past 12 months, Albanian banks have wiped out around 30 million euros in non-performing loans, according to financial expert Artur Ribaj. “This keeps the bad loan ratio stable at 4.7%,” Ribaj said. “However, the proportion of deteriorated loans is rising, and this is concerning.”
The bulk of bad loans stem from businesses, which account for 63% of the total written off in the past year. Many firms are facing difficulties in repaying debt, leading to calls for further regulatory action. The International Monetary Fund (IMF) has already urged Albania to tighten lending practices, and the Bank of Albania has responded by increasing a counter-cyclical buffer aimed at slowing down the rapid growth in commercial lending.
Despite these efforts, Albanian banks still carry a heavy burden of non-performing loans. As of the latest data, there are 37.4 billion lek (£290 million) in unpaid loans. Since 2015, banks have written off a total of 83 billion lek in lost loans, but the pace of write-offs has gradually declined as the overall quality of loan portfolios improves.
While this is a positive sign, the rise in business loan defaults suggests that more needs to be done to stabilise Albania’s financial sector. For now, the banking sector remains under pressure, balancing regulatory demands with the need to support economic growth.
