Relying on good judgment

National Bank’s refinancing rate rises from 40 to 45 percent but experts stress the need for the measure, to ensure normal economic functioning

By Vladimir Velyaminov

The increased rate is unwelcome news for those repaying loans. While it is easy to be lured by advertising, citizens should be honest in their ability to meet repayments, to avoid financial difficulty.

Deputy Prime Minister Sergei Rumas recently spoke to Parliament, explaining that the rise in interest rates is necessary — as recommended by the EurAsEC Anti-Crisis Fund. It is vital to the economy, since recent inflation of over 100 percent has rendered loan rates negative (at just 60-65 percent).

Pavel Kallaur, the Chairman of Belvnesheconombank’s Board, believes that the Government and the National Bank could reach positive rates in the first quarter of 2012. He notes that a two pronged approach is needed, since the refinancing rate may grow while inflation falls. As a result, interest rates should be fixed at a level of no more than 100 percent per annum.
Speaking of problematic debt and possible growth as a result of the increased refinancing rate, Mr. Kallaur explains that an interrelation naturally exists but ‘the most dangerous period is in the past — when rising interest rates created problematic assets’.

This year, the number of posters advertising loans to individuals has certainly remained as significant as ever; in fact, there may be more than previously. People should consider carefully before taking out a loan. Back in July, IPM Research Centre economist Dmitry Kruk said, “It was profitable to take out loans in late 2010, especially those with a fixed interest rate. Now, I wouldn’t recommend that citizens be tempted so easily, even where interest rates of 25-30 percent are offered (rather than 50-70). It will be a challenge to repay them, as salary growth has slowed down.”

This July, individuals’ unrepaid loans stood at Br138bn, according to the National Bank. By November, the figure stood at Br296bn — just over 1 percent of the total sum borrowed by citizens from banks. However, an alarming trend has been seen this year, with more loans going unrepaid in recent months.

The Deputy Chairman of the National Bank’s Board, Sergey Dubkov, recently called upon commercial banks to apply a responsible approach, saying, “You have access to profit and a market segment at present but consider what may happen to citizens’ incomes tomorrow.” It’s yet unknown whether borrowers will be able to repay loans at today’s high rates.

In the long run, borrowers must also be responsible. Banks are not pushing anyone to take out loans and cannot prohibit them. Advertising is another matter, since some banks have failed to stress the terms of loans fully to clients; they attract borrowers with low rates while refraining from emphasising that these rates can rise above the market average (including fees). Responsibility is vital on all sides.

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