Банкеръ Weekly



INTEREST RATE REMAINS UP TO 10%Enthusiasm about the so called royal credits is gradually passing on. The easy lending process and the preferential interest rates provided to businessmen who open new jobs were presented as one measure to overcome the financial stagnation. Following an almost panic application filing, however, interest in the program of the Ministry of Labour and Social Policy fell drastically. In 2003, 242 loans on the average were approved every month, but the respective number fell to 124 for the January - end-April 2004 period. According to Krassimir Hristov, expert in the Microcrediting Guarantee Fund with the social ministry, the lower number of applicants is due to the growing competition of the banks and the more attractive offers they make to entrepreneurs. That's why, in order to provoke further interest in the royal credits, the ministry is considering to make changes in the social and financial parametres of the launched credits.The six experts who work for the Microcrediting Guarantee Fund proposed its managers that the ceiling for credits should be raised from BGN15,000 to BGN20,000. The experts justified their proposal with the accumulated inflation, the increase of the lowest salary, and the changed economic situation. In return to every BGN10,000 launched, the experts also propose that borrowers be obliged to open a new job. So far, borrowers have been obliged to do so for every BGN7,500 they get. Therefore, experts say, the social function of the Guarantee Fund to encourage employment will be preserved. In fact, the number of jobs that entrepreneurs open will remain the major criteria for giving an approval to their project. In case they fail to fulfil the undertaken commitments within the term declared, the interest on the credit is now being raised by 8 per cent. It is expected to grow by 13% in the future.No changes are stipulated in the three types of loans: investment, working, and combined. Working credit will be payable in up to 18 months and will have a grace period of up to one month. Investment and combined loans will be paid off within five years, with a grace period of up to six months. The social ministry fund will keep providing the partner bank with guarantees for 70% of the credits launched to operating enterprises and for 100% - for newly-created companies. The amount of collaterals requested from potential borrowers will keep varying from 100% to 130% of the amount of the credit received. The existing alleviated collateral regime will not be abolished, and fixed assets acquired with the borrowed money will be accepted as collateral, too. As to the interest rate, it will not exceed 10% in the future. 4,761 credits totalling BGN49,421,107 have been launched under the Microcrediting Guarantee Fund program so far. Forty one other projects worth BGN434.6,000 are currently being approved. The biggest part of the loans launched, 53.64%, are combined loans, 40,32% are investment loans, and only 6.13% are working loans. The smallest number of credits has been launched to the leisure industry branch - 2.63 per cent. The number of projects financed in the field of services, agriculture, and trade is almost one and the same. The biggest number of loans have been launched by United Bulgarian Bank (UBB) - 2,438. It is followed by HEBROSBANK (658), EUROBANK (561), Central Cooperative Bank (477), and Economic and Investment Bank (61). The rest of the credit institutions did not show willingness to become partners of the guarantee fund, the social ministry announced. The weak interest in the bank sector is explained with the quite high expenses on the programme and the low interests that in some cases may lead to accumulation of losses. We should not forget, however, that if the Microcrediting Guarantee Fund takes part in the whole operation, banks practically launch almost risk-free credits. As a guarantee, the fund has blocked about BGN33MN on various accounts. But as a compensation for improperly served credits (which are only 28) BGN280,000 has been utilized so far.About a third of the submitted credit applications have not been approved by the partner banks and only five have been turned down by the social ministry. According to Stefan Vassilev, Small and Mid-Size Business Crediting Manager at UBB, the most common reason for a project to be turned down is either its unprofitableness or the improperly chosen region for its implementation. The manager approves the plans to raise the highest amount of credits, but says that a more market-oriented interest rate should be considered. It would be better, he adds, if the guarantee fund separates from the Ministry of Labour and Social Policy. That move would improve coordination between the institutions that work under the microcrediting programme and would make the process of applying for a royal credit easier.

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