Governments take action, and citizens take to the courts to address difficulties of paying back loans.
By Kruno Kartus and Alexander Pavlevski for Southeast European Times in Osijek and Skopje -- 18/03/13
Many Balkan citizens struggle to make loan payments. [AFP]
While governments across the region wrangle with budget challenges, many Balkan citizens are struggling to gain control of their personal finances.
The average debt in Bosnia and Herzegovina (BiH), Serbia and Macedonia is 700 to 900 euros per citizen. In Croatia, about 250,000 people are not able to pay their bills, resulting in about 18 billion euros in uncollected debts. In Turkey, nearly a million citizens and small- and medium-sized businesses cannot repay their loans.
"The amount of debt of the average family is more than eight [times the monthly] average wage in BiH," Muris Circic of the Faculty of Economics in Sarajevo told SETimes. "Borrowing from banks is [increasing], wages have remained stagnant and the cost of living is increasing."
Governments are taking action to alleviate the situation, and many people have sought help from the courts.
Croatia has made changes to its consumer loans act, which will prevent citizens from going too deeply into debt.
"We will limit the permitted [overdrafts] on bank accounts from the current amount of three monthly salaries to only one. The citizens will be able to repay the existing [overdraft] as a loan within a year," said Slavko Linic, the Croatian minister of finance.
Linic also said the government is working with the national bank to limit the interest rates on housing loans.
Swiss franc loans
Meanwhile, disgruntled citizens have launched a lawsuit in Croatia against eight banks for contracting loans indexed to the Swiss franc, which has recently weakened against the euro. More than 100,000 people have loans in francs, and because of changes in interest rates, the payments on those loans have increased by 35 to 100 percent.
Association Franc seeks to prevent such loans in the future and to better define the current loans.
Citizens in Croatia and Serbia are trying to restructure loans that are tied to the Swiss franc. [AFP]
"We ask that all remaining equities in loans, indexed to the Swiss franc, be recalculated to Croatian kuna with rates provided by the one that was valid at the beginning of the repayment of each loan," Goran Aleksic, co-ordinator of Association Franc's legal team, told SETimes.
Aleksic said that regional co-operation is important in proposing new regulations. He said that the Serbian law on protecting financial services customers requires that loans must have variable and non-variable parameters which determine interest rates, while the final rate should not be higher than the beginning.
Banks said they are able to independently assess risks, and that they have always warned customers that falling behind on loan repayments is extremely expensive.
"I took a credit in Swiss francs. … In the beginning was good, but after a while I could no longer pay the installments," Dan Vasilescu of Bucharest told SETimes. "I contracted another credit to close the credit in Swiss francs. After two years since having the Swiss francs credit I had already paid the amount taken three times over."
In Serbia, where more than 25,000 citizens have loans tied to the Swiss franc, authorities have asked for deadline extensions and are seeking to convert the loans to euros. They also have raised the possibility of cost sharing, with the state, citizens and banks each paying an equal share of the debt.
Belgrade resident Sreten Rajevic took a housing loan in Swiss francs five years ago, and today he struggles to make payments.
"My monthly installments rose from 250 to 300 euros. With other living costs, I find it really hard to financially sustain my family. I hope banks and the state will find solution soon," Rajevic told SETimes.
Limited wages and significant expenses are a reality for citizens across the Balkans.
Igor Stanevski, a resident of Kumanovo, Macedonia, said small salaries make loans a necessity.
"With a salary of 300 euros I can't pay heating, electricity, water and to have for food and transportation for me and my four members of family. Therefore I had to take a loan that I do not know how to return," Stanevski told SETimes.
Citizens across the region face significant financial pressures. [AFP]
To ease the situation in BiH, the government enacted measures allowing banks to offer customers the option of prolonging payment for one year by paying lower interest rates. To be eligible for a new payment schedule, individuals must be at least three months behind on their payments and their income during those months must be 20 percent less than what they owe. Just 0.04 percent of individuals who had loans participated in the programme in 2012.
Mijo Misic, executive secretary of the Bank Association of BiH, told SETimes that every new debt can lead to financial abyss.
"Citizens raise new loans to pay off old ones. The logical consequence is that the number of those who are not able to repay their loans increases. At the beginning of the global economic financial crisis, the total percentage of non-performing loans [in BiH] amounted to 3.2 percent, now [the rate] is higher than 12.7 percent," Misic said.
According to the National Bank of Macedonia, citizens' debt increased by 180 million euros in the past two years, and the number of bank accounts blocked as a result of legal action increased by 22 percent in the past year.
In Turkey, debts have been blamed for 250 suicides in the last eight years, and there are about 18,000 people in jail for failure to repay bank debts. The Turkish Banking Union reports that the number of individual customers behind on their payments more than doubled from 311,253 in 2011 to 773,000 in 2012.
The problem has expanded as citizens have embraced credit cards. According to Turkey's Banking Regulation and Supervision Agency, there are about 68 million active credit cards in the country -- a 100 percent increase in the past four years.
The banking agency is working on new regulations that will set the minimum payment amount for each term in accordance with a customer's credit limit. Customers who fail to pay the minimum amount in three consecutive terms will not be permitted to draw cash using their credit cards.
Ivana Prgomet, spokesperson of the Croatian Banking Association, told SETimes that government and financial leaders should strive to educate the public.
"It is necessary to raise the level of financial literacy among citizens by co-ordinated action of regulators and banks," Prgomet said.
Correspondents Katica Djurovic in Belgrade, Menekse Tokyay in Istanbul, Ana Lovakovic in Sarajevo, and Gabriel Petrescu in Bucharest contributed to this report.