Lending to individuals is tightened - The effects of the restrictions imposed in July of this year by the Bank of Albania are starting to take effect
Commercial banks have been hesitant to provide loans to citizens during the third quarter of the year. According to the Bank of Albania's lending activity survey, banks' hesitation was reflected in tighter lending standards, conditions and terms, as well as in a higher number of loan rejections, especially for housing purchases.
The restrictions imposed in July this year by the Bank of Albania on the loan-to-value ratio and the debt service-to-income ratio on new real estate loans were also reported by banks as factors that acted to tighten lending standards. For the purchase of a first home, commercial banks would not provide loans of more than 85% of the value of the apartment. Meanwhile, for second homes, commercial banks would not provide loans of more than 80% of the price of the apartment. The installment should be 40% of the borrower's income for lek and 35% for foreign currency.
The perceived risk to collateral, the solvency of borrowers, and current and expected developments in the housing market also influenced the tightening of standards.
Due to disposable income, employment history, and lack of collateral, banks have been denying more loans. However, citizens' demand for loans was also declining, both for housing purchases and for consumer financing.
The factors that led to the decline in credit demand, according to banks, were lower financing needs for home purchases, current and expected developments in the housing market, the use of alternative sources of financing, and regulatory restrictions that came into effect in July 2025.
In the last quarter of the year, banks expect credit demand to be lower in loans for housing purchases and higher in consumer loans, for the purpose of purchasing goods and services for personal consumption.
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