Bulgarian National Bank (BNB) is reportedly planning to increase the compulsory reserve deposits required of commercial banks from the present eight per cent to 12 or 15 per cent.
The aim is to slow credit growth.
Credit growth was 44.4 per cent year-on-year, reaching 34.5 billion leva as of end of May 2007. In April 2007 it was 38.9 per cent lower, according to BNB official data.
When the central bank removed the requirements to hold supplementary reserves in case of exceeding credit growth ceilings, which were imposed on commercial banks in 2005, the increase in bank credit accelerated. The last base period for observing credit growth ceilings expired at the end of 2006, Bulgarian-language Dnevnik daily reported on July 16.
BNB governor Ivan Iskrov warned in the middle of May that if credit growth remained so high, the central financial institution would introduce new restrictive measures. However, the new plan has surprised all specialists in the banking sector, Bulgarian-language Pari daily reported.
If these new measures are adopted by the bank, the banking system will be deprived of between 1.5 and 2.6 billion leva.
Some specialists have expressed the opinion that this would be one of the severest measures BNB could implement because the minimum required reserves could only mean losses for financial institutions. The deposits are held with the BNB and do not bear interest, and depreciate with inflation every year.
In addition, the banks lose revenue from not using the money.
Banking specialists agreed that the new requirements being considered by BNB would bring credit growth under control only in the short term, but would not help the situation in a long term. Open Society Institute senior economist Georgi Angelov said that the central bank should come up with alternative measures to prevent the damage that raising the minimum reserves could cause.
UniCredit Bulbank CEO Levon Hampartzoumian said that increasing the minimum required reserves was “certainly not a conspiracy” but BNB probably suspected that the situation was moving towards an overheating economy. According to him, this could be connected to certain processes in the Baltic states.
