Interest rate to reflect real worth of borrowed funds
Recent amendments to the Banking Code prevent banks from taking payments from borrowers for loan use, as from January 2013. How will this affect the cost of borrowing?
Of course, we cannot accuse the banks of cheating customers. Rather, they have used masterful marketing to add commission fees to loans. For example, a declared rate of 30 percent per annum may bring an additional fee of almost three percent per month, which adds on an extra 36 percent per annum (plus 3 percent of the initial amount). All together, customers may be paying around 70 percent per annum. Some banks are closer to 100 percent or, even, 140 percent.
Now, the declared interest rate must reflect the full cost of borrowing, notes the Deputy Chairman of the National Bank, Sergey Dubkov. Experts predict that rates will rise visually but will actually stay the same, simply revealing the full cost to customers. The most expensive loans are those requiring no guarantor or proof of earnings, with such products generally costing 100 per cent per annum. Without question, borrowers need to appreciate the full cost of a loan before committing themselves.
“Initially, there may be a psychological barrier,” admits financial analyst Yevgeny Mandrusov. “Few people seriously consider the interest rate. Loans are an instrument of financing purchases and for funding business ventures, so their popularity will eventually be restored, as incomes rise and the economy grows. Naturally, people should always read terms carefully, deciding whether they can afford repayments rather than simply being lured by the promise of instant money.
Matter of psychology
Banks need to change their approach to advertising, to ensure complete honesty, stresses banking expert Yekaterina Smirnova. “We should draw attention not just to the full interest rate, but to monthly payments. To improve the financial literacy of the population, a programme has been drafted for 2013-2018, developed jointly by the Government and the National Bank.
The Deputy Chairman of the National Bank, Nikolay Luzgin, notes that no change to the refinancing rate is planned in the near future but that, by the end of the year, it should be reduced to 15 percent. The exchange rate of the Belarusian Rouble is guided by market principles and received nominal devaluation last year. “In reality, the exchange rate of the Belarusian Rouble rose by 14.9 percent,” explains Mr. Luzgin. “This year, inflation is forecast to stand at around 10-12 percent, with gradual devaluation neutralised by GDP growth and rising real incomes.”