How much were our savings “hit” by the exchange rate? - BoA: Foreign currency deposits remain at high levels. Credit, the most affected
As a result of tourism revenues, remittances and foreign direct investment, euro flows continue to flood into Albania at alarming levels. This has made the Bank of Albania's efforts to de-euroise the Albanian economy even more difficult. Even in terms of Albanians' money in the banking system, i.e. deposits and loans, it seems that they choose the euro more than the lek. But did the exchange rate affect the reduction of citizens' savings and loans in euros?
Over the past year, the exchange rate has dealt a severe blow to those who had taken out a loan in foreign currency. The loans most exposed to the risk of the euro depreciation included cases where the borrower's income was in a currency other than the currency of the loan. Loan installments become more expensive, as they have to convert part of their salary from lek to the European currency.
Despite the fact that the ratio of foreign currency loans to total loans has decreased, it still remains at high levels. Data from the latest deeuroization report of the Bank of Albania show that in the second half of 2024, the weight of the foreign currency loan portfolio to total loans fell to 45.3%, about 1.8 percentage points less than in the previous year.
However, those with income in lek seem to have been more aware of the exchange rate losses they would incur if they took out a loan in foreign currency. Official statistics show that loans not protected by exchange rate protection fell by 11% at the end of 2024.
Commercial banks have an important role in informing citizens about the risks that exchange rates carry for loans they receive. In cases where a client applies for a loan in a currency other than the currency in which he has his income, banks propose to the borrower an alternative loan in the same currency as his income, as well as provide him with a concrete example of how the loan installment changes in the event of a depreciation of the lek and/or an increase in the interest rate (with specified values).
Regarding savings, since most people lock their savings in long-term deposits, they believe that when the time comes to withdraw them, the exchange rate will not have the same negative effect as it does now. As a result, although the ratio of foreign currency deposits to total deposits has decreased, it continues to prevail over savings in lek. At the end of the second half of 2024, the weight of foreign currency deposits to total deposits marked the level of 52.1%. The level of the ratio decreased slightly by 2.2 percentage points compared.
Since 2018, the Bank of Albania has undertaken a package of measures to reduce the use of foreign currencies to a level considered natural for the Albanian economy, taking into account also the growing income from tourism. According to the Central Bank, the results of the de-euroization measures to reduce the use of the euro in the economy have been limited and the European currency continues to be widely used in the Albanian financial system, as shown by the deposits and loans of citizens.
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