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Bankers are announcing better lending conditions for big enterprises

Centralna banka Crne Gore

There was €1,06 billion of loans at the end of May this year. Weighted average effective interest rates ranged from 3,96-6,93%. Everybody, except for bankers, thinks that loans are too high. Survey carried out by the Central Bank in the first quarter of this year shows that only big enterprises can hope for better lending conditions.

“Results of the survey indicate that credit standards for the economy lowered in the first quarter of 2019. On the other hand, credit standards for citizens slightly tightened. Looking ahead to the second quarter of 2019, standards for loans to big enterprises, as well as for consumer and other loans are expected to ease in the next quarter”, said the representatives of the Central bank.

Businessmen think that interests on loans are high. Representatives of the Montenegrin Business Alliance said that loans should naturally be getting closer to European standards in order for the country to enter the EU.

CEO of the MBA, Mr Milan Dragić, says that real sector isn’t satisfied with lending conditions.

“They indicate expensive loans in the situation of the shortage of financial assets required for the implementation of plans and programs. If we are headed towards Europe, we must get closer to its standards and legislation in this context as well. Interests should be brought to such level that they do not represent burden for the user”, says Mr Dragić.

One of the requirements for boosting our economy is efficient support for the initial business.

Mr Dragić points out that Investment and Development Fund has had a very important role in entrepreneurship development and served as a good support for business development in Montenegro thanks to numerous advantages it offers.

Professor Vasilije Kostić also considers that business loans are expensive.

“Claims made by businessmen about the need for loans, interest rates and commissions could be more affordable and cheaper are absolutely justified. At this moment, they certainly are. I know that bankers wouldn’t agree but that doesn’t matter much”, said Professor Kostić.

This claim is based on several facts.

“As for the loan accessibility, banks clearly have a very rigid and restricted approach which results in the elements of conservative policy in the context of credit arrangements”, says Professor Kostić.

Approach that bankers take in the assessment of their business activities is conservative and anachronistic.

“Banks decide whether they will support a business idea of some enterprise on the basis of accounts ( balance sheet, income statement and money flows). But they are not the real reflection of business capacities. Post-festum historical approach is dominant”, explains Professor Kostić.

Banks don’t seem to be future-oriented.

“They just can’t, since they assess the ideas on the basis of the past. Most banks aren’t ready to share the risk that business ideas entail. The only thing they are interested in is complete loan return with inappropriately high interest rate, measured by the degree of risk”, explains the analyst.

Secretary General of the Banks Association of Montenegro, Mr Bratislav Pejaković, says that with the risk reduction and efficiency increase we can expect lower interest rates.

“A variety of parameters determines the level of interest rates. Macroeconomic parameters are credit rating of a state, risk premiums, GDP growth rates, public debt level, balance of payment… As far as the micro level is concerned, we have price of money, lowering interest rates on deposits which influenced the reduction in interest rates on loans”, points out Mr Pejaković.

Irrecoverable loans deserve special attention.

“Sometimes, banks are forced to initiate the collection processes through lawsuits because of careless clients, who fail to repay loans regularly. Collection efficiency level, time required for the collection and engagement of bank’s resources for the activities that aren’t core business of the bank have in impact on the interest rate”, explains the Secretary-General,

Banks also takes into consideration the client’s experience in the branch he/she wants to position him/herself in.

“Beginners in business take higher risks and interest rates are higher than average. If you have positive business history with the client, interest rates are lower of course”, says Mr Pejaković.

Interest rate risk, from the point of view of the bank, comes out from the impact the future interests rates are going to have on the existing interest-bearing assets and liabilities. That directly impacts on the bank’s revenues and the value of their capital.

 

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