Albania's banks earned less in the first half of 2026 than a year earlier for the second year running, while lending runs at a decade high.

Net profit came to ALL16.2bn (€177mn) in the six months to June, against ALL17.65bn (€193mn) a year earlier, a fall of 8.5%. Return on equity dropped to 14.03% from 16.69% and return on assets to 1.39% from 1.66%, on unaudited sector statistics compiled by the Albanian Association of Banks and published by Albanian Daily News on August 12.

The Bank of Albania's own verdict, set out in its Financial Stability Report for the first half and restated on September 23, is that the system is stable and its risks are under control. Both readings hold at once, and the tension between them is what makes this a story: margins are thinning under a 2.5% policy rate at the same moment as the loan book is growing faster than it has in ten years. That is the configuration the IMF's own stress tests say Albania is least well set up for.

Profits down, balance sheet up

Raiffeisen Bank Albania is the most profitable lender in the country on this measure, at 21.75%, followed by American Bank of Investments. Banka Kombëtare Tregtare, the largest bank by assets, ranks third and is one of the few to have improved on last year. At the other end, ProCredit Bank Albania is marginally loss-making and United Bank of Albania, the market's Islamic lender, is heavily so.

Albanian banks by return on equity, first half of 2026, unaudited IFRS figures compiled by the Albanian Association of Banks. Source: Albanian Daily News, August 12, 2026.

Profits are being squeezed from two sides. Rates have come down, which compresses the interest margin that carried the sector through 2023 and 2024, and costs have not. On top of that the Bank of Albania has widened its capital requirements, which lifts the denominator of the return calculation whether or not the numerator moves.

The balance sheet itself is going the other way. Total assets stood at ALL2.34 trillion (€25.6bn) at the end of May, with deposits at ALL1.89 trillion (€20.7bn) against ALL1.73 trillion (€18.9bn) a year earlier, a gain of about 10%. The loan book was ALL986.2bn (€10.8bn), split ALL589bn (€6.44bn) to businesses and ALL397.2bn (€4.34bn) to households, and shareholders' equity was ALL234.8bn (€2.57bn), according to Bank of Albania data reported by Oculus News. The capital adequacy ratio improved to 20.44% from 19.50%, against a 12% regulatory minimum.

The lending boom

Credit to the private sector grew 14.3% year on year in the first half, taking it to about 35% of gross domestic product, the highest share in ten years. Mortgages grew faster still, at 16.1%, on an average lek rate of 3.9%.

The central bank has been steering that with macroprudential caps on loan-to-value and debt-service-to-income ratios rather than with the policy rate, and Governor Gent Sejko says they have produced the balanced mortgage growth they were meant to. He has also been pressing banks to lend more to the parts of the economy that are not housing: of the ALL25bn (€273mn) the Bank of Albania has put behind a facility for small firms and farmers, extended now to the end of 2027, only about ALL2.2bn (€24mn) has reached borrowers. The EBRD and the EU put a separate €50mn behind Albanian SME lending in July.

Asset quality has been the good news for nine years running. Non-performing loans were 3.77% of the book in May, after falling below 4% at the end of 2025 for the first time since 2008. The caveat is arithmetic: the stock of bad loans rose in absolute terms over 2025 even as the ratio fell, because the denominator was growing faster. A ratio improved by lending growth is only as good as the vintage doing the improving.

What the IMF keeps pointing at

The most searching recent assessment of the sector is not the central bank's. In Stress Testing the Albanian Banking Sector: A Decade Post-FSAP, published in April 2025, IMF economists Jakree Koosakul and Eugena Topi ran supervisory bank-level data through capital and liquidity stress tests and found the system broadly able to absorb a shock to bad loans or to interest rates. The vulnerabilities they found are elsewhere, and they are concentration risks.

Albania ranks at the top of a European peer group for how much of its banks' assets sit in claims on the public sector, ahead of Ukraine, Romania, Turkey and Poland. Set against that, the default of each bank's single largest borrower would knock the system-wide capital ratio from around 19% to 15% and leave one lender short of capital. If each bank's two largest borrowers went, the ratio would fall to 12.02% - the regulatory minimum, to two decimal places - six banks would be undercapitalised including one domestic systemically important institution, and the recapitalisation bill would come to 0.5% of GDP.

The paper also flags where the foreign-currency exposure sits. Unhedged FX lending has shrunk as a share of the total, but two-thirds of what remains is concentrated in real estate, the sector that has seen both the fastest credit growth and continued price increases. And the liquidity resilience the tests show depends heavily on banks being able to reach the Bank of Albania's liquidity facility, which is precisely what a bank facing solvency and liquidity trouble at the same time cannot do.

Albania's financial system is going through a full IMF and World Bank Financial Sector Assessment Program this year, its first in over a decade, and the central bank has said the recommendations will feed into reform. That is the process that will settle whether the macroprudential toolkit is equal to the concentration problem.

Thirteen names in a small market

The Bank of Albania's register now lists 13 licensed institutions - 12 banks and one foreign branch - in a country of 2.4mn people. Two of those are new. Jet Bank began trading in June as the first fully digital lender in the Western Balkans built on an AI-native core, having signed up more than 75,000 people to a waiting list before launch. Turkey's state-owned Ziraat Bankasi, licensed in May, now appears on the register as a branch.

That still leaves a concentrated market. BKT and Credins Bank are the two big domestically headquartered lenders; Raiffeisen, Intesa Sanpaolo, OTP and ProCredit carry the foreign flags; Tirana Bank, Union Bank, Fibank Albania, American Bank of Investments and United Bank of Albania make up the rest. The central bank's stated reason for welcoming new entrants is that competition should push digitalisation along in a market where cash is still king.

That is not a figure of speech. Cash held outside the banking system hit a record ALL522bn (€5.7bn) over the summer, roughly a quarter of the money supply, against something nearer 9% across the European Union. Albania joined the single euro payments area and has been pushing digital payments hard, a ALL500,000 (€5,470) ceiling on cash transactions has been in force since January, and the central bank tightened its disclosure rules on currency-conversion fees in September. The cash pile has gone up anyway.

A record lek and a shrinking country

The currency is the other thing shaping bank balance sheets. The lek reached a record ALL91.8 to the euro on September 14, up 5.1% against the single currency since the start of the year, on tourism receipts, remittances and foreign investment. The current account deficit narrowed 40.6% to €361mn in the first half, the smallest since 2018, with a services surplus of €1.79bn including €957mn of net tourism income, and foreign direct investment of €1.144bn, half as much again as a year earlier.

For a euroised loan book that cuts both ways. A stronger lek makes euro-denominated debt cheaper to service for borrowers earning in lek, which is where the unhedged FX exposure the IMF worries about sits. It also erodes the lek value of what exporters and emigrant families send home, and the central bank's attempts to lean against it - it bought about €140mn in the first quarter, its largest intervention on record - have had less purchase this year than last.

Monetary policy has been doing very little in the meantime. The Supervisory Council held the key rate at 2.5% on July 1 and again on August 5, with inflation running close to the 3% target and the economy growing 3.7% in the first quarter.

The constraint nobody can rate-set their way out of is people. For most of a year Sejko has been calling demographics the biggest long-run risk to Albanian growth: a population down to around 2.4mn, about a third below its 1990 level, with a median age approaching 43 and continued emigration of exactly the working-age people who take out mortgages. Albania is an early case of a shortage of mothers that is arriving everywhere. A banking sector lending 14% more each year into a country with fewer people in it every year is not a contradiction yet. It is a question about the second half of the decade, and the Financial Stability Report does not answer it.