High interest rates halted consumer loans
On April 7th, the National Bank published data on individuals’ debt on consumer loans.
In 2012, amid rising real incomes, consumer lending in Belarus increased significantly. Interest rate under some credit agreements was over 100%, but a number of tricks were used to mask it. The government’s ban on hidden fees and commissions and the demand to show full interest rate resulted in slowdown in consumer lending.
In 2012, the volume of outstanding consumer loans in the national currency, grew from BYR 7.6 trillion to BYR 10 trillion or by one-third. Consumer loans in foreign currency were banned in Belarus since mid-2009. Strong growth in consumer lending is associated with increased incomes, aggressive advertisements of consumer loans by both, traders and banks, as well as not always proper actions of some banks, which were attracting consumers with extremely low rates while masking the real picture with high bank fees and additional payments.
On January 22nd, 2013 amendments to the Banking Code enforced a ban on the collection of additional fees and other payments under consumer loan agreements, other than the interest rate. The amendments proved to be effective. Since early 2013 consumer debt grew by 2.2% only, or BYR 218 billion. On April 1st, household debts on consumer loans was BYR 10.2 billion. The 80-90% annual interest rate on consumer loans, against the background of relative stability in the foreign exchange market stopped potential borrowers and forced them to review the feasibility of borrowing at high interest rates.
Thus, a number of banks, which have used tricks to mislead consumers, were unable to manipulate the interest rate, and consumers have become more financially aware. It is anticipated, that the consumer credit market will be reformed in favor of larger and, above all, state-owned banks. Banks, providing consumer loans services will have to revise their approaches in working with the population and seek for new operational opportunities to maintain the profitability.
According to Belstat, in August 7,600 people were dismissed, including 4,800 civil servants. Dismissals of civil servants were due to the optimisation in the public administration by up to 30%. Some civil servants would retain their job however would lose the status of a civil servant. Vacancies on the labour market are likely to reduce in number, thanks to the optimisation, the state administration would increase wages for public servants. The payroll fund for retained employees is likely to increase and some former state employees are likely to get jobs in affiliated organizations. The optimisation of the state apparatus should complete by January 1st, 2018, and some former civil servants are likely to join the ranks of the unemployed.