Commercial Albanian banks have revised the conditions for granting loans, including housing loans. Since the beginning of 2023, the rules of loan processing have changed. They have become more conservative. Experts believe that the tightening of lending policies could have a negative impact on the real estate market.
The changes have affected not only individuals but also legal entities. The reason for the tightening of conditions was the increase in interest rates and inflation. The latter significantly worsened the solvency of citizens, which increased the risks for banks.
According to the Central Bank, in 2023, commercial financial institutions did not change the rules for issuing mortgages. However, competition between them was growing rapidly. At the same time, analysts noted an increase in cases of rejection of loan applications. The main reasons for this were:
– insufficient financial security of the borrower;
– doubtful credit history;
– instability of employment.
In 2023, there was an increase in demand for various loans. Loans for liquidity and investments were the most popular. In addition, bank customers applied for loans to buy a house or an apartment. The purchase of consumer goods was also a common reason for borrowing.

How the credit sector is developing

The Bank of Albania recorded increased lending to the real estate sector in 2023. The country’s financial institutions granted loans worth almost 247 billion lek during the period, which is about 19 billion lek more than in 2022. Most of the applications came from representatives of the wholesale and retail trade sector and the real estate market.
Despite the increase in lending rates, Albanian businesses and citizens are actively applying for loans.
Mortgage lending grew by 78% in 2023. This sector accounted for more than 8 billion lek in total, while in 2022, this amount was 1.7 billion lek. The reason for this activity, according to experts, is that investors are interested in the local real estate market. Many see the purchase of real estate as a profitable investment. At the same time, the cost of property is rising, forcing buyers to turn to banks.

Forecast for the housing market

Experts expect house prices to continue to rise this year. The main reason for the increase in value is the increase in the Infrastructure Impact Tax. Revising this tax has led to a rise in the cost of construction work and, as a result, of properties in general. The new level of tax is only approved in the capital of Albania. Here it has reached the maximum level of 8%. However, the resort’s municipal authorities are considering possibly increasing the rate from 4% to 6%.
Another factor contributing to the increase in property costs could be the revision of prices in the real estate market. So far, this process has only affected Tirana.

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Chinese banks continue to use bonds backed by non-performing loans to build resilience during the crisis. They have increased sales of the securities in 2024, a move that has boosted growth. However, investors still prefer to remain cautious and are not ready to take decisive steps. They have doubts about the quality of the assets on offer from local lenders.
Bond issuance, which guarantees the repayment of non-performing loans, reached about USD 6.7 billion in 2023. According to S&P Global Ratings’ analysis of the Chinese market, this is a record for China. The designated amount is 54% higher than the 2022 result. The bonds include underlying loans that include:
– mortgages;
– credit cards;
– business credits classified as substandard or doubtful.
In the latter’s case, there is an assumption that, despite their unreliability, they will still be a source of income. This is achieved by seizing collateral or allowing borrowers to repay on time. Based on data for October 2023, the repayment rate was:
– for residential securitisations – from 37%;
– for securitisations of other products – up to 17%.
It is noteworthy that it is unprofitable for banks to sell such bad loans, unlike unsecured ones. However, according to the regulators, this mechanism positively impacts market recovery. Experts believe that this option will improve the stability of financial organisations and help increase the number of loans issued. Another way to improve the balance sheet is to sell pools of bad loans. In this case, banks transfer such loans at a discount to government agencies that manage troubled assets.

Predictions for the financial sector

In the view of Kang Zhou of S&P Ratings, the market for such bonds will only grow. He expects the trend of increasing bank issuance to continue next year.
According to S&P, in 2023, the share of substandard home loans was 52% of all loans issued. At the same time, the extent to which they are recoverable has fallen significantly due to the crisis in the property market.
The major issuers of such products include the most prominent state-owned financial institutions:
– Industrial and Commercial Bank of China;
– Bank of China;
– China Construction Bank;
– Agricultural Bank.
In addition, commercial institutions on the list include:
– Shanghai Pudong Development Bank;
– Bank of Communications;
– China Merchants Bank.
It should be clear that the consequences of such a proliferation of securitisation are still difficult to assess. The state of the country’s credit sector itself makes matters worse. In addition, the identity of the investors who buy troubled loans is often unknown. Banks usually sell them to private funds and asset management companies. Such trends could have a negative impact on China’s fragile financial system.

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Nubank is a Brazilian neobank that has been operating successfully in the Latin American market for ten years. It has managed to become the second financial company in the region in terms of value, after Itaú Bank, which has 78 years of experience. In the first quarter of 2023, Nubank recorded an 87% increase in revenues and net profit compared to the same months of the previous period. This is thanks to the bank’s sound growth strategy and ability to react quickly to changing market conditions.
The founder of the Brazilian digital bank is David Velez, who worked for many years in the venture capital sector. In 2013, he decided to change his field and create Nubank. Velez’s goal was to build a financial organisation with the following characteristics:
– low-cost processes;
– a completely digital structure;
– the ability to analyse large amounts of data.
According to David, these characteristics would enable the bank to generate high returns once it became a mature and stable business. And that is exactly what happened: following the publication of the results, Nubank’s shares rose by 30 per cent on the New York Stock Exchange, taking its market value to USD 37 billion.

Nubank’s strategy for success

When Velez founded his fintech company, 80% of the Brazilian market was in the hands of 5 banks. Their main source of income was loans at high-interest rates and commissions. The businessman decided to start here because there was already serious competition among digital banks in the US. And in Brazil, there was no alternative to traditional financial organisations. The first thing Velez did was to offer customers credit cards with no fees. This was necessary for the company because it didn’t need a banking licence to issue loans.
To cut costs, Nubank avoided expensive advertising, instead inviting users and, through them, their friends. This strategy paid off, and within two years, the bank had about 2 million customers. In addition to providing loans on favourable terms, the company offered users a convenient mobile application that allowed them to carry out many transactions independently without visiting a physical office.
In 2023, about 45% of Nubank’s revenue came from interest on loans, with the rest coming from accounts, fees for investment and insurance services, and terminal usage. Meanwhile, to mitigate lending risks, the digital bank is gradually increasing the limit for users. If there is a high probability of non-payment, the customer is offered a special secure card. To use it, the customer must first deposit some of their own funds. This approach allows Nubank to minimise the number of problem loans.

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Short-term payday loans are a popular form of financial assistance for US citizens. This lending is cheaper for the public because it provides quick access to funds and allows people with different banking histories to get money. However, the CRL, an organisation dedicated to responsible lending, warns of the negative consequences of such loans for citizens and the system’s functioning as a whole.

Problems with short-term loans

Payday loans are made in one instalment and are usually around USD 500. This type of loan is popular in more than half of the states. According to the CRL study, annual interest rates on a USD 400 loan can exceed 500%. In Oregon, for example, the rate is 140%, and in Texas, it can be as high as 662%.
A number of US states have already passed laws limiting the size of payday loans to USD 400. However, there is language in this document that prohibits three-figure lump sums. This situation points to problems in the regulation of the US financial system.

CRL presented official statistics on payday lending:
– 37 states in the country allow payday loans;
– 11 states have no clear regulations on these loans;
– more than 12 million US citizens use this type of loan each year;
– 18 states have an interest rate cap of 36%.
According to Yasmin Farahi, director of the CRL, the government needs to tighten control over this lending sector. Moreover, protection should cover all consumer groups. So far, interest rate caps introduced in some regions have shown good results.

Alternative to payday loans

In addition to tighter regulation of the sector, one of the options for combating the popularity of short-term loans in the CRL was the emergence of similar products from banks. The idea is to provide consumers with different credit instruments from trusted financial institutions. The main requirement for them is to increase the flexibility of repayment, which attracts people to quick loans.
Six major US banks have already launched special credit programmes for different population segments. They offer options for loans ranging from USD 500 to thousands of dollars. At the same time, the interest rates are 15 times or more lower than those charged by payday lenders.
Many banks also offer small-dollar loans, a good alternative to high-interest loans. At the same time, the US authorities are encouraging the development of affordable credit programmes with flexible repayment terms.

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In Poland, as in other European countries, the housing problem is acute. The price of property in the country is rising regularly, putting it out of the reach of many citizens. One of the ways to solve the housing problem is a mortgage in Poland, introduced in July 2023.
It is worth noting that the safe lending programme is not the first attempt by the authorities to provide citizens with affordable housing. In 2016, they introduced an initiative that included an increase in the construction of rental apartments. The idea was that these properties would be available for purchase after a while. However, the programme failed and was cancelled. The government hopes that the new project will become a more effective tool for providing Polish citizens with their own housing.
Terms and conditions of state mortgage loans:
– allows you to buy a flat or house at 2% per annum;
– is available to buyers under the age of 45 who have not previously owned a property;
– the maximum loan amount is more than 110,000 euros for a single buyer and 135,000 euros for families.
According to Prime Minister Mateusz Morawiecki, the loan scheme aims to help young people buy their first home at an affordable price.

Features of the mortgage

The authors of the programme position it as a safe loan with a fixed interest rate. Borrowers do not risk losing their property due to an increase in monthly payments, which remain unchanged throughout the mortgage term.
Borrowers can apply for the subsidy at seven banks in Poland, including Alior, VeloBank, Pekao and others. Around 4,000 buyers have applied for a mortgage in just two months of the programme. Another advantage of the government initiative is that it is available not only to Polish citizens but also to foreigners who officially work and live in the country.
A mortgage at 2% is an optimal solution for buying a house in the context of rising interest rates. In this case, interest accrual does not depend on the inflation rate or the central bank’s interest rate increase.
Consumers have very well received the Polish government’s programme. On the first day of the programme, more than 12,000 people contacted banks for credit advice. There is no limit on the number of mortgages granted under the scheme. The authorities promise to provide loans to anyone who qualifies for the programme and can provide all the necessary documentation. The main objective is to solve the housing market problem and provide affordable housing to as many people as possible.
An essential condition for obtaining a mortgage is the creditworthiness of the applicant. For this purpose, the banks examine the income level on a case-by-case basis. In developing the scheme, the designers focused on incomes, not only in big cities. The government notes that the loan is available to people with a monthly income of 2,000 euros or more.

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The Truist Financial holding company has announced a collaboration with IBM Corporation on the Quantum Accelerator project. The programme aims to introduce quantum computing technologies to the banking industry. In addition, the companies plan to collaborate on Truist’s Innovator in Residence programme.
IBM’s Quantum Accelerator initiative will increase the efficiency of the company’s operations. Truist will be able to use innovative solutions to improve productivity and service quality in banking.
As part of the collaboration between the companies, IBM will provide Truist with individual access to quantum computing and resources to implement and apply these solutions. In addition, IBM experts will work with Truist employees to expand the company’s quantum computing capabilities. The partnership will primarily focus on identifying technical opportunities to improve the quality of consumer banking services.
According to Truist Financial Corporation spokesman Scott Case, the partnership with IBM marks a new phase in the company’s development. With the help of the IT giant, the largest US bank will be able to maximise the use of innovation to strengthen its market position and expand its activities in new directions. Quantum computing has huge potential for the financial sector. These technologies will transform the banking industry by providing practical solutions to today’s needs.
It is worth noting that IBM is a leader in quantum computing. The company has extensive experience in this area and can integrate solutions into the Truist business process system in the most efficient way.

The potential of quantum technologies

IBM analysts have conducted a study of the capabilities of quantum computing as it applies to the financial sector. The report predicts active growth in solutions based on this technology and its use in banking in the coming years. Financial companies need to be ready for such changes. To do so, they should:
– deepen the study of the possibilities of using quantum technologies in their activities;
– give their specialists access to the technologies and encourage their staff to innovate;
– include quantum computing in their long-term business development strategy.
Truist Corporation clearly follows these points. Quantum computing solutions have already been in use in several areas of the bank, and there has been staff training in the use of these solutions.
The Innovators in Residence project is another area of cooperation between Truist and IBM. This brings together representatives of the IT sector in an innovation centre organised by Truist. The bank has created ideal conditions for large technology companies and small start-ups to share their innovative ideas and technologies and implement them in the banking sector.

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The Ares Direct Lending Fund has received an investment of USD 8.7 billion. It was launched in 2022 and reached its first close in June 2023. Passing this milestone means that the organisation will now include equity in its work. At the same time, the process of attracting third-party investment will continue.
The Direct Loan Fund, set up by Ares Financial Corporation, works exclusively with investments from Europe. It is developing dynamically, supported by growing interest in the market itself. The private credit segment is estimated at USD 1.5 trillion, and its growth dynamics exceed the growth of traditional lenders, i.e. banks. This is due to the policy of financial institutions to underwrite loans only as a last resort. Banks are wary of the difficulties in selling leveraged debt. The financial sector is also facing challenges from rising inflation and interest rates. Geopolitical tensions are also exacerbating the situation. In addition, increased volatility in the equity market is making it extremely difficult to attract investment.

What are direct lending funds?

Banks set strict conditions for loans that are almost impossible for small and medium-sized businesses to meet. This is why direct loan funds, which target unlisted companies, are the best solution for small and medium-sized enterprises. By using such organisations, you can increase the market value of your business and, if necessary, reduce the amount of your debt.

Benefits of direct loan funds:
– the opportunity to take the product to an international level;
– support for small businesses;
– attracting a partner who is interested in developing the company.
– the possibility of attracting major investors.
The funds select objects for investment on the basis of their profitability and development forecasts. They also assess the industry and its long-term prospects. The funds tend to favour the financial services, healthcare, retail and consumer niche sectors.
In most cases, the fund is not expected to take full control of the company, but this is not an option. They prefer to enter into temporary partnerships with companies for about 3-5 years, after which they exit the management of the business by selling shares.
The US firm Ares is one of the leaders in the global alternative investment market. It was founded in California in 1997. It operates through 4 independent divisions:
– Ares Credit operates in the liquid and illiquid credit sectors;
– Private Equity – investments in the energy and infrastructure sectors through majority ownership or joint asset management arrangements;
– Real Estate – real estate investments in the US and Europe;
– Ares SSG – a division operating in the Asia-Pacific region.
As of 2021, the company managed about USD 295 billion in assets.

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The collapse of Silicon Valley Bank has caused a significant upheaval in the market and, more importantly, has shown the financial system’s vulnerability. According to Mike Wilson, lead strategist at Morgan Stanley, the world is amid a credit crunch.
The expert came to this conclusion after analysing the trends in tightening lending rules seen in many banks. There was a severe drop in lending just two weeks after the innovations. The reason for the sharpest decline in the history of the banking system was the attempts of financial institutions to stabilise the situation with the outflow of deposit funds. After the bankruptcy of SVB, customers started withdrawing money from banks en masse to avoid the risk of further collapses.
However, the collapse of a technology bank was not the only reason for the drop in deposits. According to Morgan Stanley, around $1 trillion has been withdrawn from US banks since the interest rate hike, held in deposit accounts.
According to Wilson, another factor in the credit crunch has been the declining availability of loans for small businesses. According to an analysis of the sector, this banking service has become the most difficult to obtain in the past 20 years. The situation is aggravated by lending rates being at their highest in 15 years.

The impact of the FED’s aggressive policy on the credit crunch

Higher interest rates and other measures to curb inflation increase the likelihood of a recession. The fact is that credit availability has declined not only for companies but also for individuals, negatively affecting market development.
Morgan Stanley analysts believe 2023 is a highly challenging year for the stock market. They came to this opinion after analysing several bankruptcies of financial institutions, which launched a chain of problems in the credit sector. Wilson noted that the S&P 500 index could fall by 20% by the end of the current period. The main prerequisite for this is a decline in corporate revenues. And the strategist expects the revenue decline to be the largest since the crunch in 2008.
Morgan Stanley warns that even with stable stock indices, there is a significant risk of a stock market crash. The fall in quotations could be sharp and unexpected, as in March this year when SVB and many other banks went bankrupt. Small-cap stocks, less resilient to global challenges, are particularly prone to fluctuations. Wilson advises investors to be more cautious and not to take ill-advised steps, counting on lower inflation.

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Following the collapse of Silicon Valley Bank and Signature, US credit institutions have asked the Treasury Department to consider insuring deposits regardless of their size. Currently, deposits over US$250,000 are not covered by insurance. However, the government said it did not consider this issue a priority. However, the ministry should have considered that the authorities would return to discussing new mechanisms to protect depositors in the future. The White House attributed its decision to the fact that the authorities have already taken measures to stabilise the situation after the bankruptcy of central banks. The government does not yet see a critical outflow of funds, but financial institutions consider introducing deposit insurance of all sizes necessary. This would prevent future problems with the financial system.
According to the source Bloomberg, the U.S. Treasury may resort to the assets of the Exchange Stabilisation Fund to insure deposits. Usually, its funds are used to buy and sell currency or investments. For the past few years, the Fed has used the fund’s assets as an emergency loan for banks.

The US financial system

The cause for concern for US financial institutions was the collapse of SVB Bank in March 2023. It was considered one of the key lenders to companies in the IT sector and was valued at US$40bn. Around 50% of the businesses that carried out IPOs in 2022 were clients of this bank. At the same time, the government is working to find a way out of the situation. Specialists are developing special measures to support depositors of SVB and Signature Bank, which also declared bankruptcy.
After the bankruptcy of SVB, experts analysed the financial system’s stability. If about half of the customers of SVB take their uninsured deposits, then about 190 American banks and deposits totalling US$300 billion may be at risk of collapse.
The US financial system is struggling with rising inflation and rising interest rates. These and many other factors have resulted in the market value of US banks being US$2 trillion less than the book value figure, which also takes into account loans in the repayment process. Overall, there has been a 10% drop in asset value. However, about 5% of financial institutions have experienced a 20% drop in value, which is highly detrimental to their operations and the system’s overall stability. According to the sector, deposit insurance would allow banks to feel more comfortable during difficult periods of instability.

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The Bank for International Settlements, in cooperation with regulators in Israel, Norway, and Sweden, studied the potential of CBDC for cross-border payments. The Icebreaker project focused primarily on identifying the advantages and problems of digital money and the possibility of its integration into the international financial system. Special attention was paid to analyzing the hub-and-spoke mechanism, often used to combine internal CBDC structures. During testing, international transactions requiring the participation of intermediaries were divided into two domestic transactions. This approach allows payment to be made in intermediate currencies. This, in turn, enables CBDC to remain within the internal ecosystem.
Project participants note that this solution has reduced transaction risk for counterparties. In addition, the approach has sped up the transaction. The Icebreaker model is based on the possibility of deploying a special hub, which will serve as a repository of quotes from suppliers of different currencies. The system automatically searches for the most favorable rate to exchange CBDC for one of the intermediate currencies. According to experts, this approach minimizes the risk of low liquidity. In turn, this leads to an increase in commission.
The mechanism used in the project has several advantages. In the payment process, suppliers buy currency in one internal system while it is sold in another. The HTLC contract is used, significantly increasing the transaction’s speed.
However, the project’s authors have yet to disclose all the details of the transactions mechanism with CBDC. For example, there has yet to be an explanation of how intermediate currencies will function in this mechanism. The question remains open as to who will develop them: central banks or the system will apply the most popular options.

The Icebreaker model

The Icebreaker model allows you to minimize the number of connections between systems of different CBDCs. In this case, the Icebreaker hub only organizes the movement of payments; it does not process them. The system analyzes data from suppliers and compares them to find the optimal currency pair. In addition, this approach works perfectly with different CBDC systems. To implement it, you can skip specific technical requirements. This allows regulators to take other methods to develop their own digital money. The only prerequisite is to ensure the interconnections on which cross-border transactions are based.
According to BIS, their international payments model is currently the optimal solution for risk minimization and transaction speed. In addition, most systems in use do not provide a choice of currency pairs, resulting in higher fees. In the case of Icebreaker, the system determines the rate that will be most attractive to the client.

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