17/12/2004
Having analyzed the state in the commercial banks, the NBS has decided not to classify current account overdrafts as household loans with maturity of up to five years for the time being, provided that the funds disbursed in this manner do not exceed the level of one monthly salary. The requirements applying to other household loans - 20% participation or deposit and maximum repayment instalment of 30 percent of household income - shall not apply to the thus determined allowed overdraft facility, as otherwise the bank would have to reserve more funds for such facility. The NBS has already forwarded such instruction to commercial banks.
The NBS has decided on such measure after finding out that certain banks have already regulated the issue of allowed overdraft through contracts with their clients, while others have not. As the decision of the National Bank on a new classification of household loans is not to be applied retroactively, the implementation of the foregoing decision would thus bring banks into an unequal position. In that way competition among banks would be disrupted, while their clients would not be granted the same conditions when borrowing funds. Having in mind all these facts and its obligation to treat all banks and citizens equally, the NBS has issued a decision that banks shall not have the obligation to reserve more funds for current account loans disbursed up to the level of one monthly salary of the client in the transitional period.
The NBS would, however, like to repeat its warning to the citizens to pay special attention to the level of interest rates when borrowing money, as well as to other expenses, regardless of whether they opt for current account lending or other credit facilities. Based on information available to the NBS, certain banks charge interest of as much as 4 percent monthly on the allowed overdraft facility, which amounts to a 60 percent interest annually for the client. Given the stability of the dinar and the realized rate of inflation, it is such expensive, often even exorbitant, manner of borrowing through overdraft facilities, rather than NBS measures as has been presented in the public and in certain media, that represents a true assault on the poorest citizens.
That is why the NBS has decided, as of February 1, 2005, to obligate commercial banks to disclose their effective interest rates on all loans, that is, that interest rate which would clearly indicate the total cost of the loan for the loan beneficiary, including interest rates and commissions and other banking charges.
The National Bank would also like to warn that it will intensively monitor the implementation and compliance with its decision on household loans with maturity of up to five years, as well as that it will take all necessary measures, should it find that an increase in lending continues to provide inflationary stimulus to demand.
Press Release from Governor’s Cabinet
