Open Data Albania has conducted a research on the quality of loans of the banking system in Albania, based on data from the Bank of Albania for the period 2007-2013. Loans are classified as problematic when banks have difficulty in collecting them. They are categorized in several ways depending on the degree of problems they manifest:
• Standard loans are also called as regular loans, because they show no problem in time and amount of repayment;
• Loans in collection represent the loans that show the first signs of delays in repayment and are under the supervision of the bank, but not yet classified as problematic loans;
• Sub-standard loans are called the loans that are not classified as standard loans, due to delays in repaying , and are classified as problematic;
• Past due loans are called the loans that have significant delays in their payment, but the bank still has hope in their collection and are classified as problematic loans;
• Written off Loans, are called the loans that can not be collected on the bank and are classified as problematic loans.
Graphically, the share of loans according to the above categories has changed as follows (indicators are on annual basis):
Source: Bank of Albania
Comments and Analysis: ODA
As can be seen from the graph, the share of problematic loans and those in collection loans to total loans has been increasing in recent years. There has been an important increase in written-off loans, that have increased tenfold in 2013 compared to 2007. This means that the quality of loans has been deacreasing and 9.23% of these loans can’t be collected by the banks, but instead the collateral has to be executed.
The total of problematic loans (which includes sub-standard loans, past due loans and written off loans) has changed according to the chart:
Source: Bank of Albania
Comments and Analysis: ODA
By the end of the first half of 2013, the problematic loans accounted for almost 24.4% of the total with 9.78% being substandard, 5.38% being past due, and 9.23% being written off. This can be compared to 2007 where the problematic loans accounted for only 3.31% of the total with 1.71% being substandard, 0.79% being past due, and 0.81% being written off. So every category of problematic debt has increased. In 2007, 92% of the loans in the banks’ portfolios were classified as standard, while currently only 66% are considered standard.
The growth rate of the weight of problematic loans to total loans is troubling, because it shows clearly the increasing difficulty of paying of businesses and individuals, which affect and increase the overall risk of the financial system.