The ECB’s stimulative monetary policy (securities repurchase programs) will be in place for a longer period, with the expected further growth of banks’ liquidity surpluses.
About 65 percent of the value of total domestic loans, which according to data from July amounted to about 20 billion euros, were indexed or approved in euros, and 43 percent of them are related to the European interest rate Euribor, whose decline will be reduced and installments in their repayment, it was said today in the National Bank of Serbia.
The reduction of Euribor should also be reflected in the lower price of new borrowing in euros.
Euribor has a greater impact on corporate loans, given that the economy has a higher share of euro-indexed and euro loans – 83 percent, compared to loans to households – 44 percent.
– According to the data for July, about 43 percent of the value of total domestic loans was tied to Euribor, so that the reduction of Euribor is directly reflected in their lower level of installments – they say in the NBS.
By the way, the interest rate on three-month interbank loans in the Eurozone, Euribor, dropped this week to the historical minimum of minus 0.49 percent.
The Central Bank of Serbia states that in addition to lower installments for loans that are in repayment, the reduction of Euribor should be reflected in a lower price of new borrowing in euros, given that it contributes to a lower price of sources for loans in euros.
Of the loans in euros, some were approved at a fixed interest rate, and others at a variable interest rate – at most three-month or six-month Euribor increased by the appropriate margin.
When it comes to loans to households, housing loans are mostly related to Euribor.
These loans are almost entirely Euro-indexed, unlike cash loans, which are almost entirely in dinars and whose annuity level and the price of new borrowing are affected by the change in the NBS reference interest rate.
And that is most often indirectly through changes in interest rates on the Belibor money market, to which credit products are mostly tied, the NBS explains.
In the economy, investment loans are mainly related to Euribor, while in the case of working capital loans, the share of loans in dinars is higher and amounts to about 26 percent.
The NBS says that the fall in Euribor certainly affects the price of loans in Serbia, but also that it is noticed that the fall in interest rates on loans in euros was more pronounced than the fall in Euribor.
Such a reduction in interest rates, they say, is the result of several factors:
Reductions in the risk premium, which in June were about 180 basis points lower than in May 2013, as well as increases in the country’s credit rating and growing competition among banks in Serbia.
Thus, from May 2013, when the cycle of easing the monetary policy of the NBS began, to June 2020, the six-month Euribor was reduced by 0.5 percentage points, while the weighted average interest rate on new euro-indexed and euro loans was reduced by 4.6 percentage points, and the population by 4.4 percentage points.
In June, it amounted to 2.7 percent for the economy, and 3.7 percent for the population.
In the same period, the cost of repaying existing loans, ie the weighted average interest rate on existing Euro-indexed loans and loans in euros to the economy, was reduced by 4.0 percentage points, and to households by 3.3 percentage points.
In June, it was 2.8 percent for the economy and 3.6 percent for the population.
The NBS notes that the Euribor movement has had higher volatility than usual since the beginning of the year.
The coronavirus pandemic and a significant reduction in economic activity affected the lack of liquidity in the market and the growth of Euribor, which was most pronounced in the second half of April, when the three-month Euribor was -0.16 percent.
During that period, numerous measures were taken by the leading central banks in the direction of very expansive monetary policies.
This affected the growth of liquidity in the banking system and the fall of Euribor to record low levels and close to the interest rate of the European Central Bank on deposit facilities (-0.5 percent), which is considered practically the lower limit, because banks can keep excess liquidity with the ECB.
The Central Bank of Serbia says that the future movement of Euribor is difficult to predict, considering that it is a market category determined by supply and demand.
However, the movement of this rate will largely depend on the policy of the European Central Bank in the coming period, ie on whether the ECB will continue and to what extent it will pursue an expansionary monetary policy, according to the NBS.
They also point to the fact that inflation in the EU has been below the target for a long time, and that the EU economy is not achieving the expected growth, but there is talk of a recession in some EU member states.
The NBS notes that currently market participants do not expect a reduction in the ECB’s rate on deposit facilities, so no further significant drop in the Euribor rate is expected, which reached a record low level in August (-0.49% for the three-month EURIBOR).
However, the stimulus monetary policy of the ECB (securities repurchase programs) will be in force for a longer period, with the expected further growth of bank liquidity surpluses, so no higher growth of these rates is expected in the next year or two, Srbija Danas reports.
