Банкеръ Weekly

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SPECIFIC LAW IN ITALY PROTECTS AGAINST 'USURA'

THERE IS A DANGER THAT REAL ESTATES IN BULGARIA GET CHEAPERAlessandro Decio, Chief Operating Officer of Bulbank, to the BANKER weeklyMr. Decio, only one week ago in Bulgarian newspaper appeared information that after year 2007 Bulgarians will be able to take credits from EU banks. Is it possible now Bulgarian to have consumer credit or mortgage from Italian bank?- In theory yes, but practically it cannot happen. Of course, there are exceptions and an Italian bank could give a loan to a Bulgarian in case there is significant collateral like property based in Italy. The general rule in lending to individuals - no matter consumer loan or mortgage - is to have local presence. In other words, Bulgarians shall rely on the banks in Bulgaria. After all one bank could operate effectively on the market it knows best.There are other pre-conditions also. For example, how to finance a client if you don't have a control of his incomes. As you know, most of the banks require the salary of the client to be received in an account within the bank. The situation will not change after joining the EU. Of course, the situation for the banks will become more different. The procedures under which one bank from an EU country will be able to open a branch or subsidiary credit institution on the Bulgarian market will be easier. Which does not necessarily mean that a large number of European banks will start to open branches here. I do not believe something like that to happen, because by the time when your country becomes EU member, the financial system will be developed enough and the banking services market is very competitive and will be difficult to find a niche.What are the interest rates on consumer credits and mortgages in Italy?- We recently made such a research and it shows that the consumer credits in Italy are extended with annual interest rates between 8 and 10%. The interests of credit cards are between 13 and 18 per cent. On mortgages with a fixed rate the clients of Italian banks pay between 5.5 and 6% annually and when the credit is with a floating rate - currently it is between 3 and 3.5 per cent.If you make a quick analysis of the data and compare it with the Bulgarian market, you will see that the interest on consumer credits and mortgages in Italy is not that much different from the Bulgarian ones. BULBANK, for example, offers a consumer credit where in certain cases the client can have interest of 9.99% annually.There are bigger differences between the European and Bulgarian market in the interests on mortgages, but there are reasons for that. Unlike in the countries of EU, in Bulgaria there are no clear procedures with which the bank can become quickly owner of a property and offer it on the market. You do not have long enough history of real estate prices. In the moment we are evidencing a sharp increase of the prices of properties and construction lands. But no prognoses can be done clear enough about how long the trend will remain and wouldn't it be followed by a vast decrease of the prices. It makes the process of assessment harder for the banks when it is about to decide what is the value of the collateral - and with the case of ten or twenty years, which is the maximum repayment period.There is another factor that makes the mortgages in Bulgaria significantly more risky than the ones in Western Europe. In EU countries the mortgage loans are given for a purchase of an existing property, while very often in BULBANK we are financing construction, renovation or refurbishment of a flat or a house. These credits are ranked as more risky than the ones for purchase. That is why the interest rates are higher. I will immediately say that BULBANK is quite aggressive offering mortgage loans, because we financed at the level of 8.88 per cent. Currently, even though the promotion is over we continue to finance at levels below 10 per cent. The difference (the banking term is 'spread') between the interest and the income of our client from deposits is between 6 and 7 per cent. And I would say that this is quite a reasonable level.Currently in Bulgaria is prepared a law for protection of citizens with consumer credits. Is there such legislation in Italy and what are the terms?- In Italy there is the Association of Bank Account Holders - these are the clients of the banks. It analyses the market and if decided takes actions to protect the interests of its members. And not only that. There are legislative requirements in Italy that prohibit crediting above certain levels.And what is that level?- It depends upon the region in which the client lives and upon the type of the credit. But in general it could be said that it cannot extend a credit with an interest significantly above the market average with spread in the range of 20 per cent. It is forbidden even if the client is agreed to take the credit. If something like this happens, it is treated as taking advantage of a helpless situation of the citizen.The reasons to impose this law ten years ago was that in Italy there were lots of people who offered credits to clients in a bad financial condition. These money lenders were giving the money immediately, but charging interest rate of about 30-40 per cent. This has nothing to do with banking and it could be indeed treated as a crime. The breaking of the law is treated as a criminal act and the police have the right to put people in jail if they are financing above the levels, set by the law. No matter if the client is in a desperate situation and agrees to take the loan. If he complains to the authorities or if another person informs about the case, the lender will be prosecuted and judged.Does it have an effect?- Yes, significant effect. Before the law there were companies that openly advertised the interest levels. After the law, they were gone. I do not want to say that such cases do not exist now, when some companies and people are being caught for breaking this law. But this type of activity is now an exception, not a practice.

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