Marginal retail loans’ rate could save from problems with individual loans

High interest rates on interbank loans resulted in the increased deposit and loans rates. This substantially increases risks of bad loans among the population.

On October 31^st, 2012, Deputy Chairman of the National Bank said that the marginal rates on retail loans to individuals could be introduced.

The National Bank’s financial literacy reports say that the population is not adequately literate in financial issues. The National Bank has developed a number of measures to improve the population’s financial literacy however it is rather a long-term programme.

2011 proved that the population was not versed enough in financial matters. Therefore financial institutions had to intervene during the crisis to prevent greater negative consequences, for citizens too.

The sharp rise in interest rates on the interbank market has resulted in analogous processes on the deposit market. The rates have reached 52.25% per annum on three months deposits. The banking system, attracting deposits with these high rates, also issues loans at high interest rates.

The National Bank has obliged banks to disclose the interest rate on loans in full. Applying particular clauses in the legislation, a number of banks use deceptive advertising to attract the population with low loan interest rates. In Belarus, there are several banks that make profits only on commission rate, camouflaging the real credit payment with service fees and other side payments.

When interest rates on loans are as high as 100% per annum or higher, the risks of the population miscalculating their financial capabilities increase. This makes for a massive increase in citizens’ bad debts to the banking system.

Thus, the National Bank, by declaring the possible introduction of the marginal rates on retail loans to the population, is trying to prevent crises before they happen and warns banks against excessive use of side payments, misleading for the population. If a bank ignores this warning, the National Bank will use its restrictive arsenal disregarding the banks’ wishes.