Bulgarian National Bank (BNB) eased the mandatory reserves requirement to 10 per cent from 12 per cent, in a move which will release about 1.1 billion leva in re-financing for the banking sector. The decision takes effect on December 1 2008 and applies to all financing resources attracted by banks.
Furthermore, as of January 1 2009, commercial banks will be allowed to deposit five per cent of the resources attracted from abroad, half the current amount, and will not be required to hold any reserves on funds from the central and local government budgets.
The new requirement is good news for the economy, allowing banks to prop up local businesses, and if businesses are fine, everyone is fine, DSK Bank chief executive and chairperson of the Association of Banks in Bulgaria Violina Marinova told Dnevnik.
EIBank chief executive Petar Andronov said this was a positive and expected step after BNB committed itself to pursue a counter-cyclical policy.
The measure will ease inter-bank lending rates and help banks improve liquidity management, Andronov said, adding that he expected the central bank to take more action in the same direction.
The central bank’s decision to cut the minimum reserve ratio is due to the fact that the increase of more than a year ago to a great extent achieved its purpose, the BNB statement said.
On September 1 2007, BNB upped the mandatory reserves requirement to 12 per cent from eight per cent to cool down the rapidly-expanding lending market, which had grown by 63.7 per cent year-on-year in 2007, compared to 24 per cent in 2006. In October, the loan portfolio of Bulgarian banks topped 48.6 billion leva, an increase of 44.5 per cent over the previous 12 months.
The reserve requirement cut is the latest in a series of measures the central bank has taken to thaw the credit market. In early October, it decided to count half of the cash that lenders hold in their vaults as reserve assets, which freed about 600 million leva of liquidity. Commercial banks were also allowed to lend out 8.5 per cent of their reserves at market rates with no penalties imposed. Both measures stay in force.
Source: Dnevnik
