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Lek deposits are returning to decline, what are the causes?

2024-04-30 13:39:04Biznes SHKRUAR NGA REDAKSIA VOX

Lek deposits are returning to decline, what are the causes?

The data of the last few months show that the liquidity in Lek in the banking sector is decreasing again.

Deposits in Lek fell for the second month in a row in March and decreased to the value of 769.9 billion Lek, down by 3.4 billion Lek compared to February.

However, deposits in Lek remain in annual growth, by approximately 7%. However, unlike what happened with deposits in Euro, those in Lek during the last two years have shown an unstable performance during the year. According to the Bank of Albania, this is conditioned especially by the fiscal policy and the high budget surplus.

The record budget surplus last year brought a significant liquidity squeeze in the banking sector. Until the month of December, the banking sector's reliance on the liquidity instruments of the Bank of Albania reached record levels.

After the month of November, with the narrowing of the budget surplus and further with the full spending of the deficit in the month of December, the condition of deposits and liquidity in the banking sector improved significantly.

But, starting from February, deposits in lek are falling again, apparently following the pace of the government's balance sheet. This year also started with high fiscal surpluses. At the end of the 2024 quarter, the budget surplus reached a record value of 33.4 billion ALL, increasing by 8.1% compared to the same period last year.

In parallel, banks' reliance on the central bank's REPO borrowing instruments increased by almost 50% during March and reached the value of 31.5 billion ALL.

The performance of liquidity in the lek has a significant impact on important indicators of the financial market and the economy, such as the yields of government debt instruments or even on the performance of the exchange rate.

During the month of March, the yields of government securities, especially 12-month bonds, have recorded a slight increase, mainly due to insufficient demand at auctions. The shrinking of Lek deposits may be one of the factors.

On the other hand, it should be kept in mind that credit in the local currency is growing at a fast rate. According to the Bank of Albania, the new loan in Lek almost doubled in the first quarter of this year. The decline in deposits and a shift of larger amounts of liquidity to lending to the private sector has also had an effect, however small, on government bond yields.

The contraction of the Lek supply in the financial market also has an effect on the Euro-Lek exchange rate, which after March is showing new downward trends. In large part, this is due to the gradual increase in foreign exchange inflows. However, the fall in the monetary supply of the lek can play an additional role. 


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