Non-performing loans in Albania drop to historic low of 4%

Non-performing loans (NPLs) in Albania’s banking sector have hit their lowest level in two decades. According to new data from the Bank of Albania, the NPL rate fell to 4.06% in February 2025, down from 4.69% a year earlier.

Why this is important: The steady decline in non-performing loans signals greater financial stability in the banking system and stronger credit discipline among borrowers. It also reflects the positive impact of monetary easing and currency depreciation, which have helped reduce the burden of foreign-currency debt.

Context: In value terms, the total stock of NPLs dropped from €351 million to €344 million, a decrease of around €7 million year-over-year.

Key drivers behind this trend include:

• Lower interest rates, driven by the Bank of Albania’s reduction of the base rate, making loans easier to repay.
• Weakened foreign currencies, which have made foreign-currency loans cheaper to service.
• A more cautious lending approach by banks, with tighter conditions to avoid risky loans.

Overall, the volume of credit to the economy reached €8.4 billion, split between:

• €4.8 billion in Albanian lek
• €3.6 billion in foreign currencies

The Bank of Albania has previously noted that 2024 was notable for the absence of new problem loans, and even saw an increase in repayments from previously non-compliant borrowers.

Meanwhile, commercial banks have also adjusted by tightening credit criteria, particularly for households, to reduce exposure to potential defaults and protect loan portfolio quality.