Abstract
The early 2000`s epitomized very low levels of loans in Albania. The combination of imposition of stringent credit ceilings and the high and rising number of non-performing loans caused the commercial banks to have difficulties to meet the soaring demand for credit. Bank of Albania imposed low credit ceilings, artificially lowering the ability of the banks to provide loans despite having healthy deposit reserves. In 2001 the situation changed dramatically however, as a result of the administrative decision to transfer the bad loans from the Savings Bank to the Loan Handling Agency. This led to a changed financial picture overnight and a greatly improved NPL situation, by wiping out most of them as far as the banking sector was concerned. The Albanian economy had a boom in credit growth particularly after 2004, especially in foreign currency lending. It still remained less than what it should have been, due to low ratio of loans, compared to deposits level. The credit crisis of 2008 saw a decrease in lending, and 2009 saw an even greater deterioration. Nowadays supply has tightened, with banks making it more difficult to request loans, and the demand has decreased as well, with businesses reluctant to take on risky investments, indicating a lack of confidence in the Albanian economy and uncertainty about the future, especially in sectors such as construction, that are regarded as highly important to the overall performance of the economy. DOI: 10.5901/ajis.2016.v5n3s1p40
Highlights
After having emerged from a 50 year communist regime, Albania started to transform its economy from a largely planned system to a to a market economy
A multitude of challenges have arisen in the banking system in Albania making it a very fragile sector
There is a plethora of problems caused by the economic crisis as well as by the reduction of income that used to be generated from Albanian emigrants worldwide
Summary
After having emerged from a 50 year communist regime, Albania started to transform its economy from a largely planned system to a to a market economy. Because of strong economic growth, Albania’s population enjoyed a period of improved finances, and a significant percentage of the population transitioned from poverty to middle class. It doesn’t help that the world economies, especially the financial and banking sectors, are still feeling the pinch of reduced demand and increased competitiveness in the world market.
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