Business bank deposits in Albania have continued to grow at a rapid pace in 2023, confirming a multi-year expansion trend. According to the Bank of Albania, by the end of last year, business deposits in banks reached a record value of 360 billion lek, up 15.5% compared to the previous year.
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Significant Growth Since 2020
The growth of business deposits is a noticeable trend in recent years, accelerating especially after the pandemic. Since the beginning of 2020, business bank deposits have increased by almost 85%. When accounting for the exchange rate effect on foreign currency deposits, this growth is even higher. Since early 2020, the Euro-Lek exchange rate has fallen by 15%.
After the pandemic, business deposits have grown at significantly higher rates compared to individual deposits. In 2021, business deposits increased by 27%, while individual deposits grew by 8.1%. This gap narrowed in 2022, with business deposits rising by 8.9% and individual deposits by 5.2%. The gap widened again last year, with individual deposits increasing by only 3.2%, while business deposits grew by 15.5%.
By the end of 2023, business deposits accounted for 22.4% of total deposits, up from 16.2% at the beginning of 2020.
Economic Recovery and Price Increases
The strong growth in business deposits in recent years is linked to several factors. It primarily indicates that Albanian enterprises have benefited significantly from the economic recovery cycle post-pandemic and the sharp rise in prices since 2022. The Albanian economy showed relatively positive performance last year, with GDP growth estimated at 3.4% by INSTAT. Although lower than the nearly 4.9% growth in 2022, this is still high compared to the EU average and the Western Balkans region.
Business performance indicators also show a positive trend. The retail sales index grew by an average of 5.2% compared to the previous year. According to INSTAT, total sales in 2022 reached 3.36 trillion lek, up 26.7% from 2021. Net profit for businesses hit 316 billion lek, a 20% increase from 2021, despite a slight decrease in the profit margin to 9.5%.
Factors Driving Deposit Growth
According to the Bank of Albania, the rising trend in business deposits reflects several factors, including improved liquidity and financial conditions, active liquidity management to control costs amid rising input prices and uncertainty, and continued bank credit support. Long-term factors include economic formalization, digitalization, and greater business access to banks, supported by improvements in financial infrastructure and banking products.
The increase in card payments and internet banking transactions also contributed to this trend. In 2023, the total transaction volume reached 2 trillion lek, up 28.1% from the previous year. Card payments alone amounted to 64.1 billion lek, a 26.6% increase from 2022.
Money Laundering Concerns
However, according to the Special Prosecution Office (SPAK), part of the growth in business deposits may be linked to money laundering activities. In its 2023 annual report, SPAK highlighted the prevalence of money laundering among Albanian criminal groups. It noted an increase in the use of commercial companies to receive and transfer money from criminal activities, distributing it through investments and regular business transactions.
SPAK pointed out significant cash deposits suspected to be proceeds from criminal activities in various bank accounts, often under the names of commercial entities or relatives of suspects. Complex schemes involve the use of Albanian banks as transit points and commercial entities as intermediaries for international criminal organizations like the Italian mafia.
One example involved an individual laundering money for the Italian 'Cosa Nostra' by transferring funds through a foundation in Liechtenstein to a personal account in Switzerland, then to a commercial company in Albania, which subsequently transferred the money to a company in Hong Kong.
Corruption and Public Projects
SPAK also noted the sophistication of corruption, particularly in public projects contracted through Public-Private Partnerships (PPP). Violations include improper preparation of feasibility studies, miscalculation of contract values, and bypassing legal procurement procedures. High-level public officials have been found negotiating and influencing tender procedures to favor certain companies, turning the competition into a formality.
Overall, while the growth in business deposits reflects a strong economic recovery and effective liquidity management, the involvement of illicit activities cannot be ignored, raising concerns about the integrity of the financial system in Albania.