New edition of Banking Code shed light on loans interest rates
Banks have used loopholes in the law to misinform borrowers about the final interest rate on loans. Sometimes financial illiteracy resulted in conflict situations about the paid interests. The new edition of the Banking Code eliminates this shortcoming, and banks will have to review their final mortgage interest rates.
On January 22nd, amendments to the Belarus’ Banking Code took effect. The amendments hold the banks liable to disclose the overall interest rate on loan agreements.
On the consumer credit market there was a situation when banks would hide the final interest rate on loans, masking it with large commissions against the background of low loans’ base rate. Banks that specialized in retail consumer loans (Delta Bank, HKbank, Trust Bank, SOMBelBank) set the base rate at 20-30% per year, while the final interest rate, taking into account sales charges, could be as high as 140-150% per annum.
The National Bank obliged the banks to disclose the overall interest rate on loan agreements. Poor financial literacy of the population often resulted in an incorrect financial assessment of the loans, leading to conflicts, which required intervention by National Bank experts following written appeals. Many nationals found themselves in a difficult financial situation due to the non-existence of the bankruptcy institute for private persons.
On January 22nd, the amendments to the Belarusian Banking Code took effect. Its article 137 “Loan Agreement” has been revised and any levy of additional charges (fees and other) on loans has been banned. According to the new rules, banks must inform about the full interest rate on loans. Banks still have some room for manoeuvre to include additional charges, but in the case of abuse, National Bank specialists may intervene to prevent further conflicts.
Thus, the consumer loans market will undergo some changes. On the one hand, banks are no longer allowed to mask high interest rates on short loans, which will reduce the overall interest rates on consumer loans. On the other hand, consumers will be able to assess their financial capabilities and their needs in loans based on real interest rates. A number of banks may lose significant profits and will have to diversify their loan portfolio and loan products to continue operations in Belarus.
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.