A further 225 million leva will be pulled out of banks in order to limit credit growth, after the Bulgarian National Bank (BNB) approved changes on November 18 to the ordinance on the minimum obligatory reserves of commercial banks.
From December 6, which is the Bankers' Holiday in Bulgaria, banks will have to keep eight per cent of the deposits attracted by them in their reserve accounts with BNB. The cash that banks hold will be totally excluded when determining the minimum obligatory reserves.
The new policies and their time frame are not a surprise. They have been known to the banking community, and are consistent with the agreement with International Monetary Fund (IMF), the central bank said.
Lending grew 420 million leva in absolute terms in October, compared to 445 million leva in September. Private sector lending has increased for 27 months in a row by 40 per cent on an annual basis, levelling off at about 50 per cent from the second quarter of 2003 onwards.
The new policies have two prongs: first, the minimum reserve requirement is set at eight per cent for all deposits forming the commercial banks' deposit base; and second, the banks' cash is fully excluded when calculating the amount of the minimum reserve that must be maintained with the BNB.
These policies are expected to further reduce the banking system's liquidity by some 225 million leva as the commercial banks' minimum reserves held with the central bank increase.
The BNB preserves the right to take further steps towards achieving more even, balanced credit activity.
To curb credit expansion, on October 1 the BNB set the requirement that only 50 per cent of commercial bank cash be factored into determining the commercial banks' minimum reserve requirements. This raised commercial bank reserves with the BNB by some 170 million leva on an average daily basis.
Judging by the results, however, the commercial banks have not brought their credit policy in line with the BNB signal that more even growth is needed in private sector lending.
The steep increase of bank assets would not be disturbing if it was due to attracted money from individuals and companies. But statistical data show that in the past twelve months the accounts of individuals and companies have increased by only 2.6 billion leva (around 19 per cent) up to 13.6 billion leva. At the same time credits have risen by 3.7 billion leva - more than 49 per cent, and reached 11.2 billion leva.
That means that all newly attracted money has been released as credits. This is a dangerous policy, having in mind that according to the regulations of the BNB and the Basel Committee on Banking Supervision, loans are the riskiest assets.
Banks do not set aside even part of the newly received money for investments in less riskier assets, such as government securities and deposits in first-class credit institutions that would guarantee their solvency at any time.
From December 6, which is the Bankers' Holiday in Bulgaria, banks will have to keep eight per cent of the deposits attracted by them in their reserve accounts with BNB. The cash that banks hold will be totally excluded when determining the minimum obligatory reserves.
The new policies and their time frame are not a surprise. They have been known to the banking community, and are consistent with the agreement with International Monetary Fund (IMF), the central bank said.
Lending grew 420 million leva in absolute terms in October, compared to 445 million leva in September. Private sector lending has increased for 27 months in a row by 40 per cent on an annual basis, levelling off at about 50 per cent from the second quarter of 2003 onwards.
The new policies have two prongs: first, the minimum reserve requirement is set at eight per cent for all deposits forming the commercial banks' deposit base; and second, the banks' cash is fully excluded when calculating the amount of the minimum reserve that must be maintained with the BNB.
These policies are expected to further reduce the banking system's liquidity by some 225 million leva as the commercial banks' minimum reserves held with the central bank increase.
The BNB preserves the right to take further steps towards achieving more even, balanced credit activity.
To curb credit expansion, on October 1 the BNB set the requirement that only 50 per cent of commercial bank cash be factored into determining the commercial banks' minimum reserve requirements. This raised commercial bank reserves with the BNB by some 170 million leva on an average daily basis.
Judging by the results, however, the commercial banks have not brought their credit policy in line with the BNB signal that more even growth is needed in private sector lending.
The steep increase of bank assets would not be disturbing if it was due to attracted money from individuals and companies. But statistical data show that in the past twelve months the accounts of individuals and companies have increased by only 2.6 billion leva (around 19 per cent) up to 13.6 billion leva. At the same time credits have risen by 3.7 billion leva - more than 49 per cent, and reached 11.2 billion leva.
That means that all newly attracted money has been released as credits. This is a dangerous policy, having in mind that according to the regulations of the BNB and the Basel Committee on Banking Supervision, loans are the riskiest assets.
Banks do not set aside even part of the newly received money for investments in less riskier assets, such as government securities and deposits in first-class credit institutions that would guarantee their solvency at any time.
