SETimes.comCustomers outraged at Serbian banks; lawsuit looms
02/07/2009
The climate in Serbia's banking sector is heating up, placing bankers on thin ice.
By Georgi Mitev-Santek for Southeast European Times in Belgrade – 02/07/09
Serbians filling out loan paperwork from now on will most likely use a magnifying glass to read the fine print.
Recent interest rate hikes on disbursed loans, due to higher bank margins, are in breach of good business practices, the National Bank of Serbia (NBS) said on its website Tuesday (June 30th).
Banks hiked interest rates amid the financial crisis to secure profits despite a lower turnover, a move that has left customers feeling scammed.
It is common for banks to justify higher interest rates due to the flux of the Euro Interbank Offered Rate (Euribor), the average interest rate at which banks lend money to each other in the euro money market.
However, when the Euribor deflated, Serbian banks did not adjust their ballooned rates.
The NBS received a slew of complaints in May and June from customers who feel they were lured in by banks offering fixed interest rates on loans, only to watch those rates skyrocket.
In some cases, rates have been jacked up from 0.5% to 3%, a steep pace for a country whose monthly salary is in the ballpark of 300 euros, and an unemployment rate of nearly 16%. The central bank, the National Bank of Serbia (NBS), sent a letter to banks urging them to re-examine the provisions of their loan contracts.
"[We will] assess the legality of banks' general enactments and [prepare] a by-law to regulate this issue in line with best world practice," Central Bank Governor Radovan Jelasic's office said in a statement.
"The NBS believes that banks should examine interest rates hikes on disbursed loans, especially those introduced after September 30th, and make necessary adjustments or reach common ground with their clients."
The NBS called out several specific banks for elevating rates unfairly -- Alpha Bank, Eurobank EFG and Piraeus, ProCredit Bank, Raiffeisenbank, Erste Bank and Hipo Group Alpe Adria and domestic Univerzal.
"Banks overplayed, giving long term loans based on short time deposits and loans, and now they [are trying] to cover themselves with larger margins. If they don't turn margins back according to original contracts and clients want to sue them, we will give them support with legal advice," said Jelasic.
Some bankers are wary of the potential for class action lawsuits looming on the horizon said they plan to lower rates in the coming months. But others stand behind their current contracts, and believe a lawsuit will not hold water.
Djordje Djukic, a professor at the University of Belgrade, points a finger at the NBS. He notes that while there are more than 30 banks in the country, there is still no competition in the sector.
"If the Central Bank took more care in determining who gets a license and when, the average margin in Serbia wouldn't be 10%," said Djukic, adding that Serbia has the highest interest rates in the region.