BNB: Don’t expect a sharp decline in interest rates on loans

The Bulgarian National Bank (BNB) expects a slight decrease in interest rates on deposits during the second and third quarter of 2012, but the instability and uncertainty on international financial markets will be a factor limiting the possible reduction of interest rates on credits, read the quarterly economic review of the central bank, published on its website.

The demand for loans, in turn, has decreased because of the deterioration of the international situation and the low investment activity of enterprises. Depressed demand for credits on the part of households is still conditioned by the uncertainty about their future incomes and the deepening negative trends of the labour market, BNB’s experts reported. According to the summarised results of the central bank’s survey of lending, during Q1 2012, the demand for short-term loans (for turnover capital needs) on the part of enterprises continued to increase, albeit moderately, and the demand for long-term credits (for investment) reported a decrease from the previous quarter.

During the same period, banks’ standards for approving loans to enterprises tightened, but to a lesser degree, compared to the previous quarter, while those for consumer and mortgage loans to households were alleviated. Banks expect an increased demand for loans in Q2 2012, both on the part of companies and households. Lending standards are expected to continue easing down in Q2 2012 for households and remain unchanged for enterprises. At the end of March 2012, banks’ receivables from households decreased by BGN 190.8 mln on an annual basis, while overdrafts and consumer loans declined by BGN 169.9 mln and BGN 94.8 mln, respectively. Mortgage credits registered an increase of BGN 50 mln, BNB’s data showed.

The upward trend for deposits persisted. In the second and third quarter of 2012, BNB expects interest rates on deposits to continue going down because of the high liquidity in the banking system, the moderate lending activity of banks and the persisting high level of saving on the part of households and businesses, said BNB’s report.

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