Some ten years ago a bank loan expansion started in Serbia with the arrival of numerous foreign banks, and the citizens have gladly accepted the diverse offer. They took the loans to buy furniture, house appliances, apartments, or to go traveling, and the desire for better living standards had blurred the loan conditions, so the interest rates were not pondered too much. The bills came for collection years later, with the rude awakening. Biljana Blanusa has more in our regular Economic Chronicle.
After the years of crisis, the Serbian citizens were thrilled to see the recuperation of the banking system and opening of foreign banks’ branch offices. Many services, from cards to various direct loans, were the bait for the strengthening of the consumer mentality. Ten years later, when the problems with pay-offs started, especially for the housing credits, people sobered up. Namely, the interest rates in Serbia are very high, spanning from 24 to 30% on the annual level, and they are the highest in Europe. With the economic crisis of the last five year, the people are having hard time paying their installments in due time. Associate of the Institute of Economy Miroslav Marinkovic believes that the banking system is table, but there are certain risks. The biggest threat are the “troublesome” credits, which make 20% of the total approved loans. Despite that, neither competent bodies not the banks are doing anything to change the situation, and the banks are even complaining about small profits. Their argument is that the loans in Serbia are expensive, since at issue is the country of high risk, thus making the obtaining of finances abroad more expensive, and also high is the rate of mandatory reserve. Along the line, they keep forgetting to mention their own commission. And yet, the banks are making nice profits in Serbia, as last year, just on the basis of collecting commissions and compensations, they made 35.5 billion dinars.
In the Serbian National Bank they say there is no legal ground for limiting the interest rates, and that diminishing inflation should lead to decreasing rates, due to the better macroeconomic stability. Also, an important role will belong to the opened negotiations with the EU, because the investments risks in Serbia will be lower and the credit ranking higher. The Ministry of Finance is also against the limits on interest rates, saying that the banks would compensate it through higher commission. However, other countries in the region have opted for such measure, i.e. set the maximum allowed rates. Croatia and Macedonia have limited the interest rates to 12 and 13% respectively, while in Montenegro it is 14% for enterprises and 15% annually for the citizens. The limits have also been introduced in the USA and some EU countries.
The housing credits indexed in Swiss francs are particularly problematic. Due to the strengthening of that currency, the monthly payments kept growing, with the increase anywhere from 30 to 100%. Such case was especially stressed in Croatia, because more than 100 thousand clients use Swiss francs, and the recent court order to the advantage of the clients who sued the banks brings some hope to those in other countries. In Serbia, 20 thousand citizens used those credits, some have filed lawsuits against the banks and won the dispute, but most are still waiting for the realization of the National Bank’s recommendation for temporary lowering of interest rates.
Source Balkans
