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submited on 17.05.2011 in category Monetary policy | Macroeconomic developments
In recent months, gaining popularity is the idea that, despite the rapid growth of exports, there can be no sustainable economic growth without a recovery of the still "weak" domestic consumer demand. Domestic demand is not insulated from the impact of external factors, on the contrary. Expansion of employment, wage growth, remittances from abroad and credit growth are heavily dependent on inflows of foreign capital in the economy and the global environment.
In recent years, access to credit became an increasingly important way of financing consumption. Sustainable recovery in domestic consumption goes through the acceleration of credit growth to the population. Bank lending recovery, however, will be at different rates in different credit segments. A look at the situation a year ago shows a visible contraction of lease financing - 25% on annual basis to the levels of late 2007, before the crisis. Overdraft also decreased by 10% annually, but remains significantly above the 2007 levels. Consumer loans granted by banks declined by 2% annually, but are still BGN 1.7 billion or nearly 30% higher than loans for consumer purposes at the end of 2007.
Compared to pre-crisis period, most severely reduced was the access to borrowing provided by companies specializing in lending (ie fast loans’ companies). Their portfolio has shrunk by over 10% within 3 years. By contrast, bank lending has increased its importance. Despite the decline in housing prices, mortgage loans are 1.5 times more in volume compared to the end of 2007.
Falling interest rates on loans over the past year confirm that the cooling of lending in Bulgaria is manifested not so much in the increase of credit cost, but rather in the increase of the criteria for borrowers on the one hand, and weakened demand for credit by households on the other. Given that bank credit constitutes 92% of household debt, increasing the inflow of capital through the banking system will be crucial for the recovery of the domestic consumer demand.