Bulgarian National Bank Governor Advises Caution with Cutting Banks' Interest Rates

Business » FINANCE | July 2, 2013, Tuesday // 19:51
Bulgaria: Bulgarian National Bank Governor Advises Caution with Cutting Banks' Interest Rates Ivan Iskrov, Governor of the Bulgarian National Bank, photo by BGNES

Ivan Iskrov, Governor of the Bulgarian National Bank, has cautioned banks to be careful with lowering their interest rates in view of an upcoming global trend for tightening monetary policy.

Speaking Tuesday during a discussion organized by the Bulgarian 'Bank of the Year' Association, he urged bank representatives to be cautious about fixed income products because the tightening would affect financing costs of Bulgarian banks.

He said that the signals about the new trend had been reported by the world's central banks at a meeting which had made clear that central banks had already allowed economies to adapt but the time had come to report inflationary potentials amassed mostly in the biggest economies.

"Banks in Bulgaria have excess liquidity and they seek to give more loans and attract new clients, but they must be careful about further decreases of interest rates. Borrowers want interest rates to keep getting lower but we must also take into account the interests of depositors who finance the banking system," Iskrov stated, as cited by investor.bg.

"Savings are affected by the inflation rate, as well as this absurd tax on interest rates which took effect on January 1," he  added, referring to Bulgaria's 10% tax on interest earned on bank deposits.

Iskrov advised representatives of commercial banks to be careful about bank products with fixed rates of interest.

"In the case of a tightening of the monetary policy mainly through the country's risk premium and through all other factors which affect the cost of liabilities, this will affect the financing costs of Bulgarian banks," the BNB Governor declared.

He further suggested that reforms in the EU also exercised influence over Bulgarian banks.

To illustrate his point, Iskrov explained that the efforts of a number of governments and of the central banks of Bulgaria, Sweden, Poland, the UK, and Malta, had resulted in a substantial mitigation of the Bank Recovery and Resolution Directive during a meeting of the Economic and Financial Affairs Council (ECOFIN) in Brussels.

He made clear that the meeting had resulted in an agreement to seek capitalization of banks experiencing difficulties mainly through funds, not by seizing resources of investors or depositors.

Iskrov reiterated that Bulgaria had no reason to worry about the stability of the banking system.

He emphasized that commercial banks had allocated sufficient provisions against bad loans amounting to 16-17% of the average for the system, the capital adequacy level was way above EU requirements, at 16.78%, and the liquidity stood at around 26-27%, meaning that "banks are ready to lend a helping hand to Bulgarian business."

He pointed out that Bulgarian banks had a typical business model and their main product was bank loans and payment services, not high-risk investment lending.

He suggested that banks had to seek to boost their efficiency precisely by focusing on their core business model, adding that they could also put more efforts into attracting individual customers.

Iskrov concluded that there was no way to boost lending unless a number of problems of the real economy were eliminated.

We need your support so Novinite.com can keep delivering news and information about Bulgaria! Thank you!

Finance » Be a reporter: Write and send your article
Tags: Ivan Iskrov, Bulgarian National Bank, banking system

Advertisement
Advertisement
Bulgaria news Novinite.com (Sofia News Agency - www.sofianewsagency.com) is unique with being a real time news provider in English that informs its readers about the latest Bulgarian news. The editorial staff also publishes a daily online newspaper "Sofia Morning News." Novinite.com (Sofia News Agency - www.sofianewsagency.com) and Sofia Morning News publish the latest economic, political and cultural news that take place in Bulgaria. Foreign media analysis on Bulgaria and World News in Brief are also part of the web site and the online newspaper. News Bulgaria