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To boost economic growth that has been undermined by the pandemic crisis, eurozone commercial banks took out € 1.3 billion in cheap loans from the European Central Bank in June. That led to a record drop in the Euribor last week, the interest rate at which European banks lend money to each other. Today, it is between -0.3 and -0.5 percent.
The monthly loan installments will be lower for all users who initially borrowed in the euro indexed currency or initially purely in euros with a variable interest rate, explains Ljubica Pantelić from the Belgrade Banking Academy, visiting Morning program.
It adds that in the total amount of loans it amounts to 43 percent of all approved loans.
“A lower Euribor is calculated on all loans, in which they have already been approved, where the interest rate has been agreed as variable, and which adjusts to changes in the market and in those recently approved,” says Pantelić.
According to her, the interest rate, as high as it is if it is paid in a short period of one or two years, does not feel as much as with loans that last 10, 20 or 30 years.
“Now they will surely see that there is less war, it is simply impossible not to notice that the interest rate changes. That is a subjective feeling,” says Ljubica Pantelić.
Asked whether, due to the variation of the Euribor, the interest rates are higher than the principal in the first years of repayment of the installment, he said that it is not related to the interest rate such as Euribor or any other interest rate model .
“It is simply a loan repayment model. At the moment of taking out the loan, the principal is taken and the interest rate is agreed, which we know as the nominal interest rate, and the repayment period,” explains Pantelić.
According to her, since the loan is repaid according to the annuity plan, the interest rate of the higher amount, that is, the initially approved loan amount, is paid in equal monthly installments in the first annuity.
He adds that in the next accounting period, the loan amount will be less than what was paid. To see that, you need to stretch the annuity plan and see how more interest is paid in the first few months, or years of repayment, but essentially decreases as the rest of the debt decreases.
Negative interest rates are undesirable for the economy
Euribor has been negative for six or seven years, so this is nothing new. This year’s situation with regard to the pandemic and major market disruptions has led to it being more volatile than usual.
“It is certainly not natural or desirable for the economy that interest rates are negative. This indicates that there is a risk of deflation, or simply that there is a reduction in interest and investment activity in the market,” says Pantelic.
He adds that it is difficult to predict how the Euribor and other interest rates will move, that is, how the price of capital will move. It all depends on what the supply and demand will be.
Facing the pandemic, the economy stoically endured
In its annual report, Moody’s Agency notes that Serbia’s economic response to the crisis caused by the pandemic was adequate, that the package of economic measures was timely, comprehensive and well implemented.
They also estimate that the banking sector entered the crisis relatively strongly, that the level of problem loans dropped significantly from 21 percent in 2015 to four percent in the first quarter of this year.
“We have had a series of eight years of very stable politics that has led our economy to cope with the pandemic stoically,” Pantelic said.
It highlights that other measures taken by the government to repair the effects of the consequences are significant and the two quarters that are currently monitoring the situation with the pandemic show that there is a greater demand for loans than before and that it is seeking to face market changes. The best possible.
