Due to the risk that they will not be able to collect the loan, banks in Serbia are cautious, and the price of the loan for the most common cash loan has been reduced to an average of 9.2 percent.
Interest rates on loans to both the population and the economy in Serbia are constantly falling, which is, after all, a global trend, and there is no doubt that it will be even lower. A few days ago, the National Bank of Serbia (NBS) reduced its base rate to only one percent, and that level is 1.25 percentage points lower than before the pandemic broke out. The downward trend in interest rates is also visible in loans in repayment. As interest rates are reduced, loan installments are lower as a result.
According to the NBS data in September, which is their last data, the average interest rate on dinar loans was 8.3 percent. Compared to May 2013, when the easing of monetary policy began, it is lower by as much as 12.2 percent. Interest rates on the most common, cash loans were reduced by 0.1 percentage points to 9.2 percent. Many will say that this is still a high price of a loan, considering the price of borrowing by the banks themselves.
What will be the reaction of the banks?
Is it time for banks to significantly lower the price of loans, considering that the borrowed money is now the cheapest for them?
Zoran Grubisic, a professor at the Belgrade Banking Academy, says that banks have room for that, but that they are prevented by the risk of a crisis caused by the corona, reports Politika.
“Definitely banks have the opportunity to lower interest rates, because the reference interest rate of only one percent is the lowest in history and very close to the base rate set by the European Central Bank, which never was. That someone told me five years ago that the reference interest rate will be only one percent I would not believe him. I am convinced that banks will react, but when and for how much, we will see. It seems to me that 9.2 percent on a cash loan is a high interest rate. The corona crisis will affect employment and reduce the client’s earnings, because if someone loses their job, banks will not be able to collect the loan. The collateral in the case of a cash loan is very small,” said Grubisic.
As for Euro-indexed loans to households, which are mostly housing loans, the average interest rate on newly approved loans in September was 3.3 percent and was 0.4 percent lower than in June.
The central bank explains that the decline in the average rate is the result of an increase in the share of housing loans in total newly approved loans in the euro sign, from 66 percent in June to 78 percent in September. They are approved at a lower interest rate than the average.
The results of the newly published October survey on credit activity show that credit standards for households were tightened during the third quarter. The tightening of standards referred primarily to cash loans and refinancing loans, and to a lesser extent to housing loans.
The tightening of standards was primarily due to the increased impression of risk and less willingness to take risks in a pandemic, and competition among banks acted in the same direction, while the impact of financing costs was neutral.
Which loans are most in demand?
According to banks’ expectations, the standards are expected to ease in the fourth quarter, which will be affected by competition among banks and lower costs of sources for loans. The tightening of standards has resulted in stricter requirements regarding loan collateral – the value of collateral, mortgages and mandatory participation and deposits, as well as the price conditions of loans – higher interest margins and commissions and fees.
According to the banks, the demand of the population for loans increased in the period August-September. First of all, the demand for foreign currency-indexed housing and dinar cash loans and refinancing loans has increased. The growth of demand was influenced by the purchase of real estate and refinancing of existing liabilities, and the same factors should contribute to the growth in the period until the end of the year.
The growth of loans to households in September amounted to 13.8 percent and they increased by 49.5 billion dinars. In addition to favorable borrowing conditions, an additional two-month moratorium on loan repayments, as well as lending to entrepreneurs under the guarantee scheme, also contributed to the growth of household loans.
Cash and housing loans are still the two most represented categories among loans to households, with a share of 44.7 and 35.7 percent, respectively. In addition, the growth of loans was also contributed by lending to entrepreneurs within the guarantee scheme. At the same time, claims of banks on the basis of consumer loans and credit cards increased slightly, while overdrafts on current accounts were at a similar level as in June, Sputnik News reports.
