The Bank of Albania intervened to limit credit to the construction sector because it feared an increase in bad loans. The Governor of the Bank of Albania, Gent Sejko, stated in the Parliamentary Committee on Economy that the measures taken are more preventive or protective of the banking system so that the 2008 crisis does not repeat itself.
"For the real estate market, it is a developing market. We see the market as a whole in relation to the financial sector. Our primary concern is that it does not affect lending, similar to the 2008 crisis when banks in America went bankrupt and the market ballooned until prices fell, the value of collateral fell and of course loans were no longer repaid. So we have taken our measures," said Sejko.
However, the governor emphasized the message that banks are currently in good conditions for exposure to the real estate sector.
"The banking system is controlled by exposure to this market, but we have taken measures to further regulate exposure to this market. It is important that the increase in property prices should go in parallel with the increase in household incomes," said Sejko.
Through a regulation, which entered into force in July of this year, the Bank of Albania capped the amount of credit that private banks can provide for the purchase of real estate.
The loan in lek for the purchase of the first home was limited to 85% of the property value, while for the second and subsequent homes it was limited to 80%.
Another limitation set by the Central Bank is for monthly loan repayment installments. For loans in lek, the monthly installment should not be more than 40% of the borrower's income, while for second loans, etc., the ratio is reduced to 35%.
As for the foreign currency loan, the ceilings will be 75% and 70% depending on whether it is a first or second home purchase. As for the monthly installments, they will be 35% of the individual's total income for the first home loan, and 30% when it is a loan to purchase a second property or more.
Editorial
