Loan rates may rise again as credit risk levels go up, Asen Yagodin, Deputy Chairman of the Executive Board of the Association of Banks in Bulgaria, said on Tuesday, addressing a conference entitled "Banks in Search of New Strategies".

He said that the Consumer Loan Act has been amended to allow borrowers to pay off their loans 14 days after receiving them without giving any explanations to the bank and without incurring a prepayment penalty. This should influence the price of loans, he added.

He noted that all current legislative measures are aimed at protecting borrowers, and not lenders. Effective laws allow a company which has borrowed money from a bank to enter bankruptcy proceedings retroactively to the period before the loan was provided, thus placing the bank in a disadvantageous position,

Yagodin said. He called for new legislation to change the situation, because otherwise loan rates will rise.

The expert said, however, that loan rates are likely to remain unchanged in the following three to six months. According to him, the capacity of banks to increase loan rates further is very limited, because such a move would make borrowers less able to repay their loans.

Loan rates in August decreased 0.8 per cent year on year while deposit rates increased 0.9 per cent, Yagodin said. "This means that banks bear the brunt of the crisis," he noted. He added that some banks will incur losses this year.

Clients need not worry as the capital adequacy of banks in Bulgaria is among the highest in Europe, at 18 per cent, he said. There are enough buffers to handle bad loans, he said.

Yagodin cited Bulgarian National Bank figures which show that the percentage of overdue and restructured loans in Bulgaria as at the end of August was between 16 and 16.5 per cent. "These are not only bad loans; some of them have been restructured and are expected to perform well again," he said.

Source: BTA