Lowering the interest rates on deposits and maintaining current levels of interest on loans – this should be expected by bank clients over the next six months. And this is a moderately optimistic forecast, stemming from May figures as published by the Central Bank.
The first fact which strikes the eye is a significant amount of the bad loans – 9.9 billion levs in late May 2012. Ultimately, any amount of bad and restructured loans is nothing to worry about as far as the net income of the banking sector covers the costs of provisions.
If one looks at the overall picture in crediting, it will immediately become obvious that
crediting to citizens is in a dead-end street.
Despite the constant advertising and promotions for one or another type of mortgages or consumer credits, the annual growth of this type of financial products is zero. Even in consumer borrowing, which in late May 2012 reached an overall 7.46 billion lev, there was a decline of 90 million lev on an annual basis. It was partially offset by a symbolic growth of 30 million lev in mortgage loans on whose promotions banks spent much money. The effect of advertising campaigns on mortgage loans is still negligible, but at the same time the increase in overdue payments is more than visible – over 280 million for a year. At the same time – consumer loan delinquencies are much smaller in volume – about 60 million lev.
These figures illustrate the following several trends. Incomes of more people are going down and more people have started feeling insecure with respect tot heir jobs, due to which more people prefer to save rather than borrow.
At least for a year bankers have been alerting that creditworthy bank customers are gradually decreasing. Who is to think about this? And is it not the task of the government to create the appropriate business environment in a country?
It is worth noting also that more people who received loans for house purchases three or four years age, are finding difficulties to repay the amounts due.
So far
the credit market is dominated by hopelessness
that literally crushes it. The explanation as to why this is happening can be traced in corporate loans.
There, things are very dynamic, but unfortunately good news is not to be heard. The data clearly confirm that any complaints that banks do not lend to businesses are deprived of any reason. An annual growth of 1.9 billion lev in loans extended to companies is a good achievement in a crisis. The problem is that this increase is due primarily to business activity in the second half of 2011 but less so in 2012 – the increase then was only 400 million lev. In other words, the growth in business lending in a 2012 will be much less than in 2011.
In contrast, however, the rate at which bad loans and restructured loans to companies are rising remains stable. Only for five months they have increased by 560 million lev and in the end of May reached 6.38 billion lev. It appears that loans in arrears are more than the newly extended ones. Which is a sure indicator that businesses sink deeper into the morass of insolvency.
Companies that continue to be profitable are decreasing in numbers and are not quick to decide and make new investments. Therefore, the demand for medium-and long-term corporate loans is severely limited. In the current situation best companies are primarily interested in the so-called current capital loans: bridge financing – i.e. loans taken to cover the initial cost of a transaction before the customer starts to pay for goods and services supplied. But all stops here. Loans for the purchase and installation of machinery and equipment for production of new or expansion of existing types of products are exceptions.
Banks are also to blame.
Perhaps because of their bitter experience with bad debtors they complicated procedures for examining and resolving loans. Two years ago, a solvent company which has a credit history in a bank could count on the fact that its loan request will be satisfied within two to three months. More and more companies, however, complained that the examination of their requests is protracted and may last half a year with unclear outcome.
The tighter control on risk assessment burdens all these procedures, and they often become even more complicated because of incompetence or negligence of any of the administrative official whose signatures are required in these long chains of committees and boards that evaluate requests for loans.
Bank managers commented that
the fear of mistakes
among loan officers and specialists in risk assessment is so intensive that they want to be as much on the safe side that they deny to grant a loan even in case of the slightest doubt. Such behavior might seem laudable, but it is damaging not only businesses but the banks themselves by depriving them of revenue and thus adversely affecting their financial results. For this reason employees in credit institutions are oriented towards the so-called retail sales. They are vigorously pursuing citizens who have proven their reliability and solvency and try to sell them their new credit card products.
More often, people now happen to get a call from an employee of a bank which they have never in life used the services of. The question how these bank officers managed to get the telephone and the personal data of people who are not their customers is quite another story, as well as whether this is legal.
The BANKER
