BoA report, expected significant decline in lending in 2021, problem reducing consumption

The Bank of Albania warns of a significant downturn in the economy in 2021. In a recently published report, the BoA shows that, in the fourth quarter of 2020, banks in the country have reduced the number of loans to businesses, households and individuals. All this has come because banks notice the inability of businesses to repay at least old loans, therefore they will not give new loans even for reasons of recovery. According to the BoA analysis, the contraction of lending jeopardizes lending to the economy, one of the main indicators to resume recovery. "The decline in demand for loans, for five quarters in a row, from the point of view of banks, has been driven by the higher risk perceived for the macroeconomic situation in the country and the prospects for it. Banks tightened lending standards to businesses in the fourth quarter of 2020. The prolongation of the global pandemic and the uncertainties it conveys in the economic recovery have raised banks' concerns about the solvency or current state of business and their future prospects. . These developments have made banks more prudent in terms of risk tolerance in approving new loans to businesses. "These factors have brought the highest negative balance value to lending standards for businesses," the report said. Banks are skeptical not only of businesses but also of lending to individuals. According to BSH, in the third quarter they have shown a high decline in solvency and surveys show that even for 2021 individuals are pessimistic about the debt they owe to banks. Even banks that now feel vulnerable because of the tolerances they have made to individuals regarding the loan repayment period. "For households, the terms of the loan offer were eased in the fourth quarter, both for the standards and the conditions for approving loans. This approach of banks to lending to households, for two quarters now, is determined by the indicators related to the perceived risk to households and banks' tolerance to this risk. Banks enabled them a higher maturity for the required loan maturity. On the other hand, the demand for credit continues to be perceived as low,

Consumption effects

The level of consumption is one of the indicators which parks the economic situation in the country and in 2020 this indicator experienced a significant decline. According to the BoA, as long as businesses and individuals are insolvent and fear the pandemic, the decline in consumption will continue for 2021. While it is evident that the decline in consumption is clearly coming from weakening incomes and reduced remittances. "Uncertainty at still high levels and declining disposable income are the main factors that have hindered the full recovery of private consumption in the third quarter. "The decline in consumption throughout 2020 has hampered economic activity and hampered the circulation of money, which would give a high contribution to this size," the report said. While it is announced that this situation will continue for the next three years, due to uncertainty. "Families, Small and medium-sized businesses have found themselves in financial difficulties during 2020, as a result of the effects of the pandemic. Their income has been affected by the situation created and the closure of economic activity, which led to a decrease in turnover for entrepreneurship, increased unemployment and less income in the pockets of consumers. The Albanian economy marked a recession, the unemployment rate rose, businesses and households experienced financial difficulties, and the premises for wage increases and inflation to return to target faded. "Economic activity, in the country and in the world, has been and continues to remain under the negative effect of the COVID-19 pandemic", the BoA notes. Their incomes have been affected by the situation created and the closure of economic activity, which led to a decrease in turnover for entrepreneurship, increased unemployment and less income in the pockets of consumers. The Albanian economy marked a recession, the unemployment rate rose, businesses and households experienced financial difficulties, and the premises for wage increases and inflation to return to target faded. "Economic activity, in the country and in the world, has been and continues to remain under the negative effect of the COVID-19 pandemic", the BoA notes. Their incomes have been affected by the situation created and the closure of economic activity, which led to a decrease in turnover for entrepreneurship, increased unemployment and less income in the pockets of consumers. The Albanian economy marked a recession, the unemployment rate rose, businesses and households experienced financial difficulties, and the premises for wage increases and inflation to return to target faded. "Economic activity, in the country and in the world, has been and continues to remain under the negative effect of the COVID-19 pandemic", the BoA notes. businesses and households experienced financial hardship, and the premises for wage growth and the return of inflation to target faded. "Economic activity, in the country and in the world, has been and continues to remain under the negative effect of the COVID-19 pandemic", the BoA notes. businesses and households experienced financial hardship, and the premises for wage growth and the return of inflation to target faded. "Economic activity, in the country and in the world, has been and continues to remain under the negative effect of the COVID-19 pandemic", the BoA notes.