Interest rates on loans rise against expectations

Bank chiefs in Bulgaria see personal loans interest rates rising rather than falling in the third quarter. Financial brokers and the Ministry of Finance had forecast a drop in interest rates during the three months up to September. Yet, both July and August recorded a slight increase in borrowing costs for consumers. And while official data from the Bulgarian National Bank is yet to be published, figures will likely show interest rates on the rise. As for retail deposits interest rates, these are expected to maintain their levels or increase a fraction.

In the second quarter, households borrowed, less compared to the same period last year, indicating that Bulgarians spent most of their income, and probably savings, on current expenses, finance specialists said. Rates on business loans, especially on large ones, are difficult to predict since these are closely related to the specific credit conditions.

Notably, the share of non-performing loans has become a much more important consideration for banks when deciding whether to extend a loan in the second quarter of 2012 than a year ago. And the reason for this is that between April and June overall restructured and bad loans (credits on which there have been no payments for more than 90 days) hit a high of BGN 9.9 bn. Consumer price inflation is one of the top three factors influencing Bulgarians’ decision to borrow a loan or make a bank deposit, according to the Finance Ministry’s latest poll among financial brokers.

Data for the second quarter is very similar to figures for the same period of 2011 and is highly likely to remain consistent for the rest of the year. Opportunities for investment in the real economy and the capital market also determine how attractive deposits are.

Borrowing needs, beyond current expenses, depend on whether there are planned investments in projects that require capital, as well as the supply of better credit conditions and products from banks. Liquidity needs and the macroeconomic environment affect credit demand on the part businesses on a global scale.

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