Rising credits keep Albania growth on track-central bank

INTERVIEW By Benet Koleka.

TIRANA, May 27 (Reuters) - Albania's central bank is optimistic it will meet its inflation and growth targets for 2004, citing a jump in lending by commercial banks as a key factor.

Central Bank Governor Shkelqim Cani said on Thursday commercial lending by 13 out of Albania's 16 banks had grown 58 percent in the first quarter of 2004 compared with a year ago. "Our forecasts for inflation and economic growth (in 2004) are within the two-to-four percent range and six percent respectively," Cani told Reuters in an interview. "The central bank remains optimistic the objectives will be met".

"We base our view on preliminary indicators showing better agricultural production, 58 percent higher new credit during the first quarter of 2004 compared to 2003, and the improved electricity situation," Cani added. New credit to business in the first quarter totalled 27.9 billion leks ($266 million) compared to 17.5 billion leks ($166 million) in first quarter 2003. It is seen growing 39 percent this year over the 91 billion lek total in 2003.

"An encouraging new development is that agro-processing businesses and livestock have received credits worth 144 million leks," Cani said of the sector that had had difficulty approaching banks because of unclear land ownership titles. Agriculture, construction and services account for most of Albania's 744.6 billion leks ($7 billion/6.5 billion euros) gross domestic product (GDP) in 2003 in current prices.

Higher inflation figures recorded in the past months as a result of price rises by the state-owned fixed phone and electricity monopolies seemed to be "on the wane", Cani said. Phone call price hikes were later cut back.

Year-on-year inflation shot to 3.2 pct in Janary and 4.4 in February. It fell to 4.0 percent in March and came down to 3.4 percent in April after the government backtracked. Seeking to boost credit and growth, the central bank cut the repo rate by half a percentage point this year to six percent, but Cani saw little room for another cut. Over the past 13 months rates have fallen by a total of 2.5 percentage points.

However, he added, the instability of world markets might have negative influences in the small and open Albanian economy. "If these developments endanger our inflation goal, we see the possibility of changing our monetary policy," Cani added.

In what he also saw as an expected major development in the banking industry, Cani said banks will face stiffer competition and possibly falling interest rates once the Savings Bank, now owned by Austria's Raiffeisen, starts lending to businesses.

"As a result, we might see the cutting of interest rates, especially for bigger clients," Cani said. "In this way, Raiffeisen could cause problems for some banks that may have become accustomed to quieter activity, forcing them to become more coherent and competitive in the banking industry," he added. ($=105.2 lek)

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(Reporting by Benet Koleka, editing by Ron Askew: ReutersMessaging:[email protected];
e-mail:[email protected]: Tirana Newsroom, +355 4 229824/8))