\u00a0<\/p>\n
The lack of developed markets for long term\u00a0finance has become an important\u00a0and challenging issue in Albania, but also in other neighbor\u2019s countries. Since the global financial crisis\u00a0of 2008 – 2009, this issue has become even more\u00a0prominent in policy discussions.<\/p>\n
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Having access\u00a0to long-term funds allows government and businesses\u00a0to finance large investments as well\u00a0as to reduce rollover risks and the potential\u00a0for runs that could lead to costly crises.<\/p>\n
In this context,\u00a0a number of policy proposals have been put\u00a0on the table to help economy lengthen debt\u00a0maturity; these include the introduction of explicit\u00a0seniority or sovereign debt instruments\u00a0linked to gross domestic product.\u00a0Businesses need long-term financing for acquiring new equipment, R&D, cash flow enhancement and company expansion.<\/p>\n
Although it is not optimal in all situations,\u00a0short-term debt has its uses. Among other\u00a0things, it allows creditors to monitor debtors and to cope with moral hazard, agency problems,\u00a0risk, and inadequate regulations and institutions.\u00a0In particular, because debtors generally need to roll over their\u00c2\u00a0financing when the debt is short term, creditors\u00a0are able to cut financing if debtors are not behaving as expected to guarantee the repayment\u00a0of the financing obtained.<\/p>\n
As a consequence,\u00a0shorter-term debt tends to be more\u00a0prevalent in economies with less-friendly investor\u00a0policies. Short-term debt shifts risk to debtors\u00a0because it forces them to roll over debt continually.<\/p>\n
On the other side, the issue of long-term debt can be\u00a0better understood as a trade-off between\u00a0creditors and debtors in the allocation of risk.<\/p>\n
Long-term debt shifts risk to the creditors because\u00a0they have to bear the fluctuations in the\u00a0probability of default and in other changing\u00a0conditions in financial markets. Naturally,\u00a0creditors require a premium as part of the\u00a0compensation for the higher risk this type of\u00a0debt implies, and the size of this premium depends\u00a0on the degree of their risk appetite.<\/p>\n
But, should be careful!<\/p>\n
Because of this trade-off, long-term\u00a0debt\u00a0is not necessarily optimal in all situations.\u00a0Ideally, creditors and debtors will eventually\u00a0decide how they share the risk involved\u00a0in lending at different maturities.<\/p>\n
In Albania, however, creditors and\u00a0debtors do not have ready access to long-term\u00a0financing. This lack\u00a0of long-term debt instruments can signal underlying problems\u00a0such as market failures and policy distortions.<\/p>\n
Lack of long-term financing also has adverse\u00a0implications for economic growth and development.\u00a0In particular,\u00a0companies would be reluctant to finance long-term\u00a0projects because of their exposure to the rollover\u00a0risk associated with short-term financing.<\/p>\n
Within debt markets, some studies highlight\u00a0the importance of syndicated loans as\u00a0a source of companies\u00a0financing. Recent studies\u00a0estimate that syndicated loans account for\u00a0roughly one-third of total outstanding loans,\u00a0and their relative importance has increased\u00a0over time.<\/p>\n
In Albania the first big incentive to enhance the syndicate loan it was in 2014, when the EBRD provided\u00a0a loan\u00a0to BESA foundation. But since then, only the government has used this instrument twice, as a tool to refinance the budget debt.<\/p>\n
What is needed more than everything in the financial market of Albania right now is about the diversification of financial infrastructure and market.<\/p>\n
To be more sensitive regarding to this diversification challenge we have to mention that elements like equity financing, corporate bonds, syndicate loan\u00a0lack to market.<\/p>\n
But, why not yet is enhanced the market of long term loans in Albania?<\/p>\n
In the first view, long term and short-term financing both offer businesses\u00a0some sort of temporary or long-term support in times of financial distress.<\/p>\n
Short term financing is relatively easier to obtain and is frequently used by smaller and larger firms alike.<\/p>\n
On the other hand, long term financing, is much more difficult and riskier to obtain, therefore, only larger businesses\u00a0or companies\u00a0with strong collateral can obtain long term loans.<\/p>\n
If we can survey the segmentation of businesses in Albania, roughly 80% of them are micro or small businesses. Only 1% of businesses operating in Albania could be suggested as big businesses or big companies. But, even these companies do not compare with the parameters that should has a company to be considered as a case for long term financing criteria.<\/p>\n
Longer term financing is used for larger investments or projects for which larger sums of funds are required for an extended period of time.\u00a0Long term financing refers to financing that could go up to about 5 to\u00a030 years or more. Long term loans are riskier and banks or financial institutions providing the loan have more to lose since the amount borrowed is larger and period of repayment is longer. Right now, the Albania financing market suffer the bad performance of loans, or non-performing loans concern.<\/p>\n
The companies that have invested or plan to invest in Albania are operating for a short time period in large investments, i.e. like infrastructure. And the resident\u00a0large investors that are investing in energy or mining sector are not so large, but are branches of medium companies in their residence countries, or have not access to this market.<\/p>\n
In this market and economy context, it’s obvious that the long-term loan market in\u00a0Albania is waiting for better periods, concentration of capital and economy enhancement leaded by big companies.<\/p>\n","protected":false},"excerpt":{"rendered":"
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