Borrowers will be able to repay early their floating rate consumer loans and incur no early repayment charge under a new bill being drafted by the Bulgarian central bank. The bill will implement relevant European Union regulations that have to be enforced by member states from May 2010.

The bulk of the consumer loans in the portfolios of the Bulgarian banks have a floating rate. The new rules will apply to loans contracted after the new bill has taken effect.

Financial analysts told Dnevnik they did not expect the new rule to have a significant impact on customer behavior because early loan repayment was cyclical and was done when the competition among the lenders is intense, the rates are low and the refinancing is a bargain. In their view, such a confluence of events is unlikely to be witnessed on the local market in the near future.

Some analysts said that the banks will either pass on their consumer credits to their non-banking financial units or will introduce additional charges as part of loan services that will be calculated into the cost of borrowing.

The broad consensus is that the new rules will not prompt the banks to switch to fixed rates because it is difficult to anticipate the cost of the lending resource in a couple of years. The cost of external lending resources rose sharply in the past 10 months. The rates on deposits, which provide the banks with some of their lending resource, have also gone up.

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