The write-off of bad loans by the banking sector experienced a significant decline last year.
According to data from the Bank of Albania, during 2023, banks removed approximately 2 billion lek loans from their balance sheets, compared to 6 billion lek, which was the value of written-off loans a year earlier.
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The majority of the written-off loans were in the local currency, held by the business sector. The value of written-off loans at the end of 2023 amounted to 4% of the overall troubled loan stock in banks' portfolios, Monitor reports.
Since January 2015, when regulatory requirements for writing off bad loans from balance sheets began to be enforced, banks have written off around 80 billion lek worth of bad loans. However, the value of write-offs has been gradually declining in recent years, parallel to the improvement in the quality of the credit portfolio.
The ratio of non-performing loans at the end of the previous year fell to 4.7%, hitting the lowest level in the last 15 years. Although projections from the Bank of Albania and commercial banks were leaning towards a slight increase in the non-performing loan ratio due to the slowdown in economic growth and rising interest rates, this did not happen.
Economic growth maintained a steady pace, mainly due to the significant contribution of tourism and non-performing assets. An important influence on the decrease in the non-performing loan ratio is believed to be the slight increase in interest rates by the Bank of Albania last year, as well as the strengthening of the lek in the foreign exchange market.
The stock of non-performing loans decreased by one billion lek during 2023, marking around 35 billion lek at the end of December, also the lowest value recorded in the last fifteen years. Banks have reported an improvement in the quality of credit mainly for long-term maturity loans, loans for businesses, and foreign currency loans.
However, within the non-performing loan portfolio, banks have reported an increase in the proportion of "bad" loans, now accounting for 56% of troubled loans. While the stock of doubtful loans has decreased to 16% of troubled loans, down from 23% a year earlier.
Provisions for loan losses have increased, precisely due to the increase in the proportion of "bad" loans in the total troubled loan stock. As the reduction in the stock of troubled loans was slower compared to the increase in the provision fund over the last twelve months, the coverage ratio of troubled loans with provisions increased to 71% from 64% a year earlier.
Collateral coverage of loans remains at high levels, at 75%, increasing by one percentage point compared to a year earlier. Collateral represents a critical element among protective instruments for the banking sector against the risk of loan defaults.
Loans collateralized by non-performing assets represent the majority or around 60% of collateralized loans and 44% of troubled loans. The stock of collateralized loans with non-performing assets has decreased by 5% compared to a year earlier, while portfolios of collateralized loans with other collateral have increased.
However, within the non-performing loan portfolio, banks reported an increase in the proportion of "bad" loans, now accounting for 56% of troubled loans. While the stock of doubtful loans has decreased to 16% of troubled loans, down from 23% a year earlier.
Provisions for loan losses increased, precisely due to the increase in the proportion of "bad" loans in the total troubled loan stock. As the reduction in the stock of troubled loans was slower compared to the increase in the provision fund over the last twelve months, the coverage ratio of troubled loans with provisions increased to 71% from 64% a year earlier.
Collateral coverage of loans remained at high levels, at 75%, increasing by one percentage point compared to a year earlier. Collateral represents a critical element among protective instruments for the banking sector against the risk of loan defaults.
Loans collateralized by non-performing assets represent the majority or around 60% of collateralized loans and 44% of troubled loans. The stock of collateralized loans with non-performing assets decreased by 5% compared to a year earlier, while portfolios of collateralized loans with other collateral have increased.