FLASH
Shkruar nga Pamfleti
Euro interest rates in international markets are continuing their downward trend and have touched the lowest levels in more than two years. The most important benchmark, the Euribor, is at its lowest level since October 2022. On December 2, the 12-month Euribor reached 2.43%.
The fall of Euribor has a significant impact on the balance sheets of the banking sector, but also of borrowing entities in the European currency within Albania.
Long-term loans in European currency have an interest rate that is built based on the performance of Euribor, on which a fixed interest margin is added. The drop in Euribor causes the overall loan interest to fall and borrowers to pay lower monthly installments.
Over the past 12 months, the 12-month Euribor has fallen by around 1.4 percentage points.
The drop in Euro interest rates is making borrowing in the European currency profitable again.
The aggressive cycle of increasing interest rates undertaken by the European Central Bank led to the fact that in 2023, for the first time, interest rates for loans in euros reached higher levels compared to those in lek. This brought a strong shift in the lending of Albanian banks towards the lek. Some of the borrowers even decided to convert the loan from euro to lek, taking advantage of the drop in the exchange rate of the European currency.
This year, the European Central Bank has reduced the reference interest rates three times. The interest rate on daily deposits has already dropped to 3.25%, from the maximum level of 4% that was until June. While the interest rate of the banks' basic financing instruments has decreased to 3.4%, from the maximum level of 4.5% until June of this year.
The Bank of Albania has also made two reductions, lowering the base rate from 3.25% to 2.75%.
The interest rates of the euro still remain at slightly higher levels compared to those of the lek, but the expectations for further reductions in the case of the euro are greater compared to the lek. This is especially related to the fact that the Eurozone economy is in stagnation and the pressures to promote economic recovery with lower interest rates are high.
The continuation of the downward trajectory in euro interest rates is likely to make credit in the European currency more attractive.
On the other hand, the drop in euro interest rates is not good news for banks. The decrease in interest also brings a decrease in income from assets in the European currency, whether loans or investments in financial instruments and placement in deposits abroad. The high interest rates of the euro are estimated to have had a significant impact on the growth of net interest income and bank profits in the last two years. The return of the downward cycle is expected to gradually bring a decrease in the profits of commercial banks./ Monitor
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