The Albanian banking sector is entering a delicate phase in 2025. According to the Bank Lending Survey for Central, Eastern and South-Eastern Europe (CESEE) conducted by the European Investment Bank (EIB) for the second half of 2025, banks operating in Albania expect a moderate increase in non-performing loans (NPLs), even as demand for credit remains strong.
This dual trend — high credit demand paired with growing risk concerns — places Albania among the countries where banks are becoming increasingly cautious about asset quality. The findings underline a broader regional picture but also highlight specific structural challenges unique to the Albanian economy.
Strong Credit Demand in Albania Continues
One of the most positive signals from the EIB survey is that loan demand in Albania remains robust, driven primarily by:
- Businesses, especially small and medium-sized enterprises (SMEs)
- Households, particularly for consumer loans
This sustained demand reflects economic resilience, supported by consumption and public spending. However, banks are no longer focusing solely on expansion. Instead, they are increasingly prioritizing portfolio quality and risk management.
While demand is expected to remain strong over the next six months, credit supply conditions are tightening, signaling a more conservative approach by Albanian banks.
Why Are Albanian Banks Expecting Higher NPLs?
According to the EIB, the expected rise in non-performing loans in Albania is linked to several key factors:
1. Slowing Key Economic Sectors
Some sectors that traditionally absorb a large share of credit are experiencing slower growth, reducing borrowers’ repayment capacity.
2. Rising Business Costs
Higher operating costs for companies are compressing profit margins, increasing the likelihood of delayed or missed loan repayments.
3. Structural Economic Uncertainty
Persistent issues such as low productivity, limited diversification, and dependence on consumption continue to weigh on long-term credit quality.
As a result, Albania is ranked among the countries in CESEE where banks anticipate a slight deterioration in asset quality, unlike other markets where expectations remain more stable.
Bank Profitability in Albania Below Regional Average
Another critical finding of the survey is that bank profitability in Albania remains below the average of CESEE countries.
This gap is explained by several structural characteristics:
- Small market size, limiting economies of scale
- High competition, putting pressure on interest margins
- Credit concentration in low value-added sectors
- Relatively limited diversification of financial products
While banks in countries such as Bosnia and Herzegovina, Bulgaria, the Czech Republic, Hungary, Kosovo, and North Macedonia report stronger profitability, Albania continues to lag behind the regional average.
Despite Challenges, Albania Remains an Attractive Banking Market
Despite moderate profitability and rising NPL expectations, banks continue to view the Albanian market as relatively attractive.
Key positive factors include:
- Macroeconomic stability
- Healthy liquidity levels
- Improved credit quality over the past six months
- Medium-term growth potential, especially if business conditions improve
Banks emphasize that structural reforms, reduced uncertainty, and a stronger investment climate could significantly improve long-term performance.
Balancing Credit Growth and Risk Management
The EIB report highlights a central challenge for Albania’s banking system:
how to balance credit expansion with prudent risk control.
Economic growth in Albania remains heavily dependent on:
- Consumption
- Public expenditure
Meanwhile, private investment and productivity growth remain below potential, limiting the economy’s capacity to absorb higher credit volumes without increasing risk.
Banks are therefore tightening lending standards while remaining open to well-performing borrowers, particularly SMEs and consumers with stable income profiles.
Positive Signals from the CESEE Banking Landscape
Across the wider Central, Eastern and South-Eastern Europe (CESEE) region, the EIB survey reveals encouraging trends:
- Strong and sustained credit demand
- Gradual improvement in credit supply conditions
- Growing willingness to lend to SMEs and consumers
- Improved access to financing through deposits and international financial institutions
Two-thirds of surveyed cross-border banking groups plan to expand their long-term operations in the region — a strong vote of confidence in CESEE’s growth potential.
EIB: Confidence in Regional Banking Resilience
Marek Mora, Vice-President of the EIB, emphasized that the latest survey confirms the resilience and strong potential of the CESEE banking sector. He highlighted strong demand, improving supply conditions, and advancing credit quality as key drivers of regional investment and economic development.
Debora Revoltella, Chief Economist at the EIB, added that while trends are positive, domestic and international factors — especially regulatory developments — continue to influence lending conditions.
Outlook for Albania’s Banking Sector in 2025
Looking ahead, the outlook for Albania’s banking sector can be summarized as follows:
Opportunities:
- Strong loan demand
- High liquidity
- Medium-term growth potential
Risks:
- Expected rise in non-performing loans
- Below-average profitability
- Structural economic weaknesses
Ultimately, Albanian banks are entering 2025 with cautious optimism. If reforms progress and private investment accelerates, the sector could strengthen its role as a driver of sustainable economic growth.