Just over six months ago, the National Bank of Serbia (NBS) shortened the deadline for the repayment of cash loans from a maximum of ten years, as banks normally did, to eight years in 2019, from this year to seven and from next year to six years, forcing banks to reduce their capital for the amount of still unpaid portion of the loans for a longer period than prescribed.
Now, the NBS tells banks that they can extend loan maturities because their business indicators will not be affected.
“We would like to underline that by encouraging the approval of concessional loan repayment terms, the National Bank of Serbia does not deviate from encouraging the practice of sustainable lending and preventing the approval of non-purpose loans on terms that are not in line with the riskiness of this type of product and the creditworthiness of each individual borrower. In addition, this reduces the risk of having more non-performing loans in this segment in the period after the moratorium expires, helps to mitigate the consequences of the crisis in this and next year and creates the conditions for increased consumption by individuals,” reads the note.
This is a clear signal that the NBS expects troubled autumn, as recently announced by the trade unions, according to whom 300,000 people in Serbia could lose their jobs by the year-end.
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Economist Milan Kovacevic recalls that the payment of the granted loans has been postponed by three months thanks to the moratorium, but afterwards, it will not be easier to repay the loans to the banks.
“At the same time, the banks will add the interest of the previous three months on the remaining debt and then increase the instalments. This was a tactical move, not a strategic one. Until now, the crisis was financial in nature and now we have a lifestyle change with consequences for the economy. It is certain that non-performing loans will increase in the next period. Businesses can repay loans from amortization or from profits but we should bear in mind that both will decrease.
As far as the population is concerned, a large number of citizens will lose their jobs. There has to be a plan in place what to do with banks and citizens if the number of non-performing loans increases. We have to understand that the decline could be steep and would last for a long time. Instead, because of the elections, the state acted as if it had a piggy bank with plenty of money to distribute around,” Kovacevic estimates.
The National Bank’s decision refers to cash, consumer and other loans, i.e. everything except mortgages and loans covering current account deficits. According to the NBS’ statistics, at the end of May, citizens had to pay almost five billion euro towards loans, where cash loans dominate with about 4.2 billion euro. Not so long ago, the National Bank saw the 10-year-payment period for these loans as a risk to the banking system, but now, in times of crisis, the risk is a potential impossibility to repay them, so it is trying to persuade the banks to relieve the indebtedness of debtors.
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