The new increase in the key interest rate of the European Central Bank and EURIBOR, which also affects the amount of installments on loans indexed in euros in Serbia, according to Sputnik’s interlocutor, will not cause major disturbances. It wasn’t like that until now, and all possible problems can be solved, they say, in a direct agreement between the bank and the client.
In the fight against high inflation, the European Central Bank (ECB) recently raised the key interest rate again by 0.75 percent , which is the third increase since July of this year. This also increased EURIBOR, the daily interest rate at which a group of banks on the European banking market lend money to each other.
It is precisely its growth that affects how the installments of loans indexed in euros with a variable interest rate will grow in our country. And 96 percent of housing loans in Serbia are like that. The three-month EURIBOR rose by 2.32 percent, and the six-month EURIBOR by 2.85 percent, so the calculation has already been done.
Installments higher by 75 euros, possible refinancing
A housing loan of 50,000 euros for 20 years with an interest rate of 3.5 percent, whose installment was 289 euros in the middle of the year, will now increase to 365.4 euros. Could this already significant increase in the installment of 75 euros lead to the fact that there will be those who will not be able to repay the loan installments , and then where would the solution to the problem be?
Answering this question, economist Ivan Nikolić, one of the directors at the Economic Institute, points out that such a problem can be solved in an agreement between the client and the bank where the loan was taken out.
“An effective measure is to extend the maturity, that is, to refinance that loan by reducing the monthly installment, but extending the repayment period, so on that basis the client would be in a more favorable current position.” Of course, in the long term, his financial situation would worsen because he would repay a larger amount to the bank”, he told Sputnik.
What can the National Bank do?
When asked what needs to happen in order for the National Bank of Serbia (NBS) to eventually intervene to prevent an increase in non-performing housing loans, he first of all points out that what is happening will not change the statistical picture or some fundamental relations between supply and demand in our market.
He also points out that the National Bank cannot determine the prices at which clients will borrow from commercial banks. She can possibly do what she did and what facilitated the approval of those housing loans, prescribe that the collateral, i.e. the property that serves as a guarantee for loan repayment, be reduced and prescribe the extent to which it is easier to obtain them.
“But the very purpose of tightening monetary conditions is precisely to suppress inflation, so it is illogical for you to use countermeasures to disavow this very intention, which is directed towards that fundamental goal, which is practically legally imposed on the National Bank to fight inflation”, Nikolić points out.
The primary target is inflation
He reminds that the increase in the ECB’s key interest rate, which the National Bank of Serbia resorted to this year, was precisely to suppress high inflation in order to bring it within normal limits, to around two percent. In other words, the goal of that measure is to reduce demand in order to act on price restraint. That is why, as he points out, the goal of the NBS is first of all to fight for low and stable inflation and to adopt measures that will achieve this. Taking care of the standard of the population, of its purchasing power, is also a goal, but derived from the primary one.
Nikolić believes that for people who don’t have cash, so a loan is the only way to solve the housing issue, the damage caused in the previous year and a half, with the increase in the price of square meters on the real estate market, is much greater than the increase in interest rates.
“It is not comparable in my opinion. It is a much greater pity if you are going to buy an apartment today at a 50 percent higher price than you were able to do last year. The price of borrowed capital or the installment with which you would pay for that apartment has not increased that much”, our interlocutor points out.
No increase in non-performing loans
The Secretary General of the Association of Serbian Banks (UBS), Vladimir Vasić, points out that the previous increases in the key interest rate of the ECB, and even the NBS, did not lead to an increase in non-performing loans. Their participation in total loans, as before the covid 19 pandemic, amounts to three percent, our interlocutor points out. He expects it to stay that way.
“I believe that everyone can spend 20, 30, 50 euros more and that it is not so terrible in most cases.” And that’s why there are still no effects regarding non-performing loans. And they are the same as before the covid pandemic”, notes Vasić.
Now, as he says, loans with a variable interest rate that were recently taken and in a larger amount will be the most affected . People with such loans may be threatened with the eventual inability to meet monthly obligations. He advises that if this happens, they should contact their bank, to jointly find a way to overcome the problem.
When asked whether the NBS, as a regulator, can do something beyond the client-business bank relationship, Vasić says that there has been no need for it so far.
“Now there is not a single indicator that would show that something atypical is happening that would affect everyone. The first indicator – the rate of non-performing loans is the same as before the covid 19 pandemic and for now clients are regularly paying off their obligations “, the first man of UBS is unequivocal, Sputnik writes.
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