The deposit rate is an indicator of the average deposit rate for 1-year deposits. The difference between the average loan rate and deposit rate is called the spread of interest rates. The real interest rate is the difference between the nominal rate of government bonds and the inflation rate. The risk premium on lending is the difference between the 1-year loan rate and the government bond rate.
Graphically the average interest rate for new loans in ALL and EUR in the last years:
*Until March 2015
Source: Bank of Albania
Analysis and Comments: ODA
The average 1-year deposit rate in ALL and EUR:
*Until March 2015
Source: Bank of Albania
Analysis and Comments: ODA
The interest rate spread between loans and deposits:
*Until March 2015
Source: Bank of Albania
Analysis and Comments: ODA
In 2009 the average 1-year loan rate in ALL was 15.71% and by the end of March 2015 was 8.85%, so a decrease of 7%. At the same time the 1-year deposit rate in 2009 in ALL was 6.75%, while by the end of March 2015 was 1.46%, so a decrease of 5.3%. As a result the interest rate spread (which is the main contributor in the banks’ profit and loss) has increased during this period, from 8.96% to 7.39%, in ALL.
The real interest rate is presented in the following graph:
*Until March 2015
Source: Bank of Albania
Analysis and Comments: ODA
The real interest rate is calculated as the difference between the rate of borrowing from the government (the treasury bill rate), versus the inflation rate. It has trended the same way as the 1-year government bill rate, since inflation has been under control. In 2009 the real interest rate was 5.41%, while in March 2015 was 1.42%. So for an investor who buys a 1-year government bill, the real return has decreased by 4%, while on the contrary for the government the real borrowing cost decreases.
The risk premium on lending is an indicator of the premium return that a lender (banks) requests to give a loan, compared to the other alternative: investing in risk free government bills. As a result it can be a good indicator of the risk in an economy (for example the risk of bad loans). It is calculated as the difference between the 1-year loan rate and the government bill rate with the same maturity.
Graphically in the last years:
*Until March 2015
Source: Bank of Albania
Analysis and Comments: ODA
As can be seen by the graph, the risk premium has decreased in the last two years to 5.26% in March 2015, from 6.57% in 2009. This demonstrates a decrease in risk in the economy.