Increases in yields, negative effect of 6.2 billion Lek on the banks’ balance sheet*
The rapid increase in the yields of financial instruments has brought significant losses to commercial banks in the first half of this year.
According to the statistics of the Bank of Albania, the result from financial instruments was negative in the value of 6.2 billion Lek, while in the same period of the previous year it was positive in the value of 1.1 billion Lek. The result from financial instruments has affected the most negative value since 2018.
The increase in inflation has been reflected in an expectation of higher interest rates and higher yields in international markets since the last quarter of last year. For instruments in Lek, the effect has started to be felt especially in the second quarter of the year, as the Bank of Albania also started increasing interest rates. The increase in yields affects the depreciation of financial instruments held for sale by commercial banks.
According to the Bank of Albania, securities account for approximately 33% of the total assets of the Albanian banking sector.
According to the reporting standards of the Bank of Albania, the net profit of the banking sector for the 6th month of 2022 had a value of 6.5 billion Lek, down by 38% compared to the same period last year. The main effect of the significant decrease in profits was precisely the negative result from financial instruments.
Except for financial instruments, in other items, the performance of the banking sector has been positive. Net interest income reached the value of ALL 24.7 billion, an increase of 10% compared to the same period last year.
Income from commissions reached 7.2 billion Lek, an increase of 17% compared to the previous year. Meanwhile, the expenses to provision the lost loans were approximately 1.25 billion Lek, almost at the same value as the first 6 months of last year. The NPL ratio at the end of June marked a slight decrease to 5.32%, from 5.44% in May and 7.12% in the same period a year ago.
But, on the other hand, banks also increased other operating expenses by 10%. The effect of inflation has begun to be reflected in higher costs of the sector’s activity. In particular, the item of personnel expenses also increased by 10%, an element that probably indicates pressures for salary increases in the banking sector. These pressures can be more significant in the lower positions, where the sector has begun to face the problem of securing and retaining the workforce. / E. Shehu
* Taken from ‘Monitor Magazine. https://www.monitor.al/rritja-e-yield-eve-efekt-negativ-prej-6-2-miliarde-lekesh-ne-bilancin-e-bankave/
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