Is it likely that the interests on bank loans in Bulgaria will go down in the future and thus become more accessible to citizens and businesses? Is there a hidden bank cartel or an undiscolosed index which raises the price of loans at the expense of bank clients? Why do consumers feel cheated when their loans are becoming more expensive and they are totally unaware of the reasons behind this trend?
A wave of complaints against banks and their rising interest rates on loans has been inundating the Bulgarian state institutions in recent months. This has resulted in a paradoxical situation in which the state, the business sector and ordinary citizens have declared war on the banks. They, in turn, keep silent and do not discuss the topic openly. Some anonymous bankers have defined the situation as “a return to socialism”, and others have described the attacks against banking institutions as “political”.
The presidential institution has also joined the war against the common enemy. "The economy lies as the basis of everything. Interest rates are difficult to remove by administrative measures - their reduction depends on the economic realities”, President Rosen Plevneliev told reporters. Bulgarian banks are stable and competitive, he added, expressing the position of the presidential institution that "more transparency means better protection of the interests of the people." Any proposed idea requires a public debate, the president believes. BNB Governor Ivan Iskrov has joined the discussion, stating that the Bulgarian central bank is not in charge of setting the interest rates from July 1, 1997. “This decision was taken by politicians who decided that the Central Bank must ensure the stability of the national currency”, he explains.
Prime Minister Boyko Borissov and Finance Minister Simeon Djankov met with the Association of Banks in Bulgaria to discuss the state of the banking sector and the ideas of the Finance Ministry for legislative changes in banking. Last week, Bulgaria’s top financier Djankov proposed changes in the formation of interest rates on consumer loans and the elimination of certain fees for customers. The reason for these proposals is the dissatisfaction of bank clients and the uncertainty about the cost of credits. Experts from the ministry have developed a package of three measures that will ensure greater predictability of the sums people pay when they take bank loans. "Currently, each bank can choose its own methodology to calculate interest rates on loans, which are often susceptible to change," Minister Djankov says. People find it hard to comprehend all the complicated clauses, the small print at the end of the contract and the complex terminologies. The proposed changes will offer the option that interests on loans could be determined on the basis of a fixed interest rate EURIBOR (for the Eurozone) or SOFIBOR (for the Bulgarian interbank market), including the percentage of the respective bank. Thus, households and businesses will be able to compare offers of different banks and choose the most advantageous conditions.
Indeed, "these are the rules in most European countries", Finance Minister Djankov argues. Top bankers however reacted with the counterarguments that the risk allowance for the Bulgarian treasury is much higher than that for Western banks. Some economic analysts have commented that such administrative measures will have the opposite effect, i.e. rates will increase by 2 to 3 points. Furthermore, on a competitive market, government intervention is undesirable. The introduction of compulsory indexes will not reduce interest rates, but will only make them more transparent, financial analysts say. They fear that such a move can be quite expensive for both the banks and the public. Financiers do not deny, however, that banks are in a favored position and create problems not only for households but also for the country’s economy with the expensive loans the offer.
And here are some facts to illustrate the aforementioned claims. According to data of the Bulgarian Central Bank for 2011, 17 out of the 31 banks in Bulgaria manage assets worth over 1 billion BGN. And what is more, Bulgarian banks have dramatically increased their profits from fees and commissions during the past year, with the total profits amounting to 875 million BGN.
Translated by Rossitsa Petcova
