- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
Banks are facing new restrictions on credit activities.
submited on 12.04.2005 in category Political stability | Monetary policy | Macroeconomic developments
submited on 12.04.2005 in category Political stability | Monetary policy | Macroeconomic developments
In March 2005 commercial banks agreed new loans to private non-financial sector amounting BGN 3.37 billion, as revealed in the weekly monetary statistics. Some 51.6 % of these new credits are long-term, while 26.8 % are overdraft. The bulk of newly agreed credits (73 %) have been granted to corporate sector. This is considerable expansion compared with the previous month when some BGN 804 million new credits have been granted.
As a result of the above mentioned acceleration in lending to corporate sector and households, by end of March domestic credit registered growth of 50.3% y-o-y. At the same time, the annual growth rate of total corporate credit outstanding reached 54.1% (as compared with 39% annual growth registered in 2004). As of the end of March the total households’ debt to the banking system expanded to BGN 5.1 billion, meaning growth of 83.6 % y-o-y.
Such a significant growth in lending to non-banking private sector has been predetermined by the newly adopted monetary measures aiming at moderation of credit expansion. These measures became effective as of 1st of April and envisaged allocation of additional minimum reserves required if any bank meet at once two criteria: 1/ if the quarterly credit growth rate exceeds 6% for the first quarter, 12% for the first two quarters, 18% for the first three quarters, and 24% for the entire year; and 2/ if the sum of the loans granted and the risk-weighted off-balance sheet items converted into assets, reduced by the amount of own funds, exceeds 60% of the attracted resources from non-financial sector. This imposed incentives for banks to increase their credit portfolio until the end of March and thus to achieve larger quarterly base for calculation of credit growth over the next quarters.
After Q2 we expect gradual deceleration of credit growth. This will be a result of the restrictions imposed on banks’ credit resources by both market forces and the monetary restrictions. At the same time, the central bank has already expressed intentions to adopt new set of additional measures to moderate credit growth. Generally, we consider the tendency towards continuous usage of active monetary policy measures under the currency board arrangement as not quite appropriate. It undermines the predictability of the environment for doing business in banking, raises the cost of attracted resources, and imposes additional costs on reshaping bank activities according to constantly changing requirements. This could be considered as a threat to competitive development of the banking sector and to effectiveness of the financial intermediation.
We expect that the adoption of new monetary restrictions will be accompanied by gradual shift in credit demand toward less regulated segments of the lending market. Ultimately, this means that increasing share of corporate and household indebtedness will be accumulated from sources outside the banking system.
As a result of the above mentioned acceleration in lending to corporate sector and households, by end of March domestic credit registered growth of 50.3% y-o-y. At the same time, the annual growth rate of total corporate credit outstanding reached 54.1% (as compared with 39% annual growth registered in 2004). As of the end of March the total households’ debt to the banking system expanded to BGN 5.1 billion, meaning growth of 83.6 % y-o-y.
Such a significant growth in lending to non-banking private sector has been predetermined by the newly adopted monetary measures aiming at moderation of credit expansion. These measures became effective as of 1st of April and envisaged allocation of additional minimum reserves required if any bank meet at once two criteria: 1/ if the quarterly credit growth rate exceeds 6% for the first quarter, 12% for the first two quarters, 18% for the first three quarters, and 24% for the entire year; and 2/ if the sum of the loans granted and the risk-weighted off-balance sheet items converted into assets, reduced by the amount of own funds, exceeds 60% of the attracted resources from non-financial sector. This imposed incentives for banks to increase their credit portfolio until the end of March and thus to achieve larger quarterly base for calculation of credit growth over the next quarters.
After Q2 we expect gradual deceleration of credit growth. This will be a result of the restrictions imposed on banks’ credit resources by both market forces and the monetary restrictions. At the same time, the central bank has already expressed intentions to adopt new set of additional measures to moderate credit growth. Generally, we consider the tendency towards continuous usage of active monetary policy measures under the currency board arrangement as not quite appropriate. It undermines the predictability of the environment for doing business in banking, raises the cost of attracted resources, and imposes additional costs on reshaping bank activities according to constantly changing requirements. This could be considered as a threat to competitive development of the banking sector and to effectiveness of the financial intermediation.
We expect that the adoption of new monetary restrictions will be accompanied by gradual shift in credit demand toward less regulated segments of the lending market. Ultimately, this means that increasing share of corporate and household indebtedness will be accumulated from sources outside the banking system.
What is your opinion about this article?
0 agreed
0 disagreed