Non-Performing Loans Increase in the Albanian Banking Sector during the Last Global Economic Crisis - An Analysis Based on the Client Groups

Abstract

Non - performing loans (NPLs) in the Albanian banking sector has become a crucial problem during the last global crisis. In this study, it was aimed to understand the specific reasons of and resolutions for this issue by analyzing the bank loans based on the borrower groups. Since the general increase of the business loans’ portion in the total loans has been mostly due to the loans to large enterprises, the focus of the study is on this group. The main factors of NPLs rise by the bankers answered the questionnaire are : financing unrealistic projects, lack of corporate structure in borrowers, wrong lending decisions due to external influences/corruption, negative effects of some government applications, unfair competition in some sectors from time to time, decrease in primary commodities’ prices and false external audit. According to 86 percent of them; deeper analysis of potential clients, elimination of external factors’ effects and corruption in lending decisions, government measures to prevent unfair competition, establishment of corporate structure in borrowers and more reliable external audit are the most effective remedies while 71 percent of them consider this situation as normal for Albania under its existing conditions. It is suggested that more comprehensive and objective client analysis by the banks, institutionalization in and more reliable external audit of business entities, precise and timely government decisions to prevent unfair competition and launching of new financing methods will cause considerable improvement in NPLs issue.