Construction is drowning in debt, a third of companies have more debt than capital

Construction companies are sinking into debt at a rapid pace. The Bank of Albania reported that at the end of the first half of the year, 27 percent of Albanian construction companies had debt equal to or higher than their equity.

"At a sectoral level, the construction sector continues to remain the sector with the highest debt-to-equity ratio, with around 27% of enterprises declaring that this value is equal to or exceeds the value of equity," the BoA Financial Stability Report states.

According to the Central Bank, this value has increased by almost 10 percentage points compared to a year ago. The aggressive use of financial leverage by construction companies further exposes the banking sector to a potential crisis.

A debt/equity ratio higher than 1 is not an unexpected situation in the construction sector. Construction projects generally have high initial costs, which require the commitment of massive financing.

This situation is not a problem as long as the market is doing well and apartment sales are good. But when sales slow down, highly leveraged companies can face serious problems in repaying loans.

In recent months, construction companies have reported signs of slowing sales. Some builders even claim that the market is paralyzed, a situation also linked to SPAK's actions, which have led to the collapse of some of the largest construction companies in the country./Kapital

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