Ljubica Pantelic from the Belgrade Banking Academy told RTS, on the occasion of the record fall of Euribor, that the monthly loan installments will be lower for all users who initially took loans in a currency indexed in euros or initially purely in euros with a variable interest rate.
To boost economic growth that has been undermined by the pandemic crisis, eurozone commercial banks took 1.3 billion euros in cheap loans from the European Central Bank in June. That led to a record drop in Euribor last week, the interest rate at which European banks lend money to each other. Today, it is between -0.3 and -0.5 percent.
Monthly loan installments will be lower for all users who initially took loans in the currency indexed in euros or initially purely in euros with a variable interest rate, explains Ljubica Pantelic from the Belgrade Banking Academy as a guest in the morning program.
She adds that in the total amount of loans it amounts to 43 percent of all approved loans.
“Smaller Euribor is calculated on all loans, on those that have already been approved, where the interest rate has been agreed as variable, and which is adjusted to changes in the market and on newly approved ones,” says Pantelic.
According to her, the interest rate, no matter how high it is if it is paid in a short period of a year or two, cannot feel as much as with loans that last 10, 20 or 30 years.
“Now they will certainly see that there is less installments, it is simply impossible not to notice that the interest rate changes. That is a subjective feeling,” Ljubica Pantelic points out.
Asked whether, due to the variation of Euribor, interest rates are higher than the principal in the first years of repayment of the installment, he said that it is not related to the interest rate as Euribor or any other interest rate model.
“It is simply a model of loan amortization. At the moment of taking the loan, you take the principal and agree on the interest rate, the one known to us as the nominal interest rate, and the repayment period,” Pantelic explains.
According to her, as the loan is repaid according to the annuity plan, the interest rate on the largest amount, ie the amount of the initially approved loan, is paid in equal monthly installments in the first annuity.
She adds that in the next accounting period, the loan amount will be lower for what was paid. In order to see that, it is necessary to stretch the annuity plan and see how more interest is paid in the first months, or years of repayment, but it essentially decreases as the rest of the debt decreases.
It is not desirable for the economy for interest rates to be negative
Euribor has been negative for six or seven years so this is not something new. The situation this year regarding the pandemic and significant market disruptions has led to being more volatile than usual.
“It is certainly not natural or desirable for the economy for interest rates to be negative. This indicates that there is a risk of deflation, or simply put, that there is reduced interest and investment activity in the market,” Pantelic points out.
She adds that it is difficult to predict how Euribor and other interest rates will move, that is, how the price of capital will move. It all depends on what the supply and demand will be.
Coping with the pandemic, the economy endured stoically
In its annual report, the Moody’s Agency points out that Serbia’s economic response to the crisis caused by the pandemic was adequate, that the package of economic measures was timely, comprehensive and well implemented.
They also estimate that the banking sector entered the crisis relatively strong, that the level of problem loans was significantly reduced from 21 percent in 2015, to four percent in the first quarter of this year.
“We have had a series of eight years of very stable policy that has led our economy to cope with the pandemic stoically,” Pantelic said.
She emphasizes that other measures taken by the government to repair the effects of the consequences are significant and that the whole two quarters that are currently monitoring the situation with the pandemic show that there is a greater demand for loans than before and that it is looking to face market changes, RTS reports.
