Finance Ministry: Banks should set interest rates on the basis of EURIBOR or SOFIBOR

“The Ministry of Finance is ready with three measures intended to reduce interest rates on credits. These will probably be made public by the end of the week,” Finance Minister and Deputy PM Simeon Djankov announced on BNT today.

“Currently, each bank applies its own method of setting interest rates and it is not clear how these rates were calculated. In Europe, interest rates are set on the basis of the public index EURIBOR, plus a fixed percentage,” pointed out the Finance Minister. Therefore, the first idea of the Finance Ministry is that the interest rates on credits to individuals and households should be based on EURIBOR or SOFIBOR. According to a survey of the Active Users Association, only three domestic banks - Unionbank, ProCredit and Teximbank, use a market index such as SOFIBOR, EURIBOR or LIBOR for the purpose. All other banks surveyed use a ‘base interest rate’, set from time to time by an internal authority of the lending institution.

“The second proposal of the Ministry of Finance is to either declare illegal most of the fees charged by banks or to make provisions for these to be divided between the bank and its client,” added Djankov. He gave as an example the fee for evaluating real estate property of the client which is now being paid solely by the customer. “At present, you pay for the evaluation of assets, to be pledged in guarantee for the credit, while in most countries these expenses are shared between both parties at a ratio of 50:50. Banks must also pay because they gain from the interest rate on the loans,” argued Djankov.

The third measure projects the elimination of the BGN 400 limit in the Consumer Credit Act. Last year alone, more than 500,000 loans of the kind were extended and, according to Djankov, the lending of small amounts of money encourages usury.

The proposed legislative amendments are expected to be presented to the Association of Banks within days. Big banks declined to comment on the topic for Klassa, arguing that they have not seen the Finance Ministry’s ideas on paper yet.

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