Consumer credit up steeply as a result of abolition of limit
Consumer credit provided by banks has resumed its steeply upward climb, according to data made public by the Bank of Greece yesterday. Two factors have contributed to this strong rise: the lifting of restrictions on consumer loans and the reduction in households’ disposable income, which has forced them to resort to borrowing. This development is worrying the Bank of Greece, which sees in the rising volume of consumer loans an additional source of intense inflationary pressure. The central bank’s data show that, in November, the total amount of consumer loans provided by banks was 12.06 billion euros, a 25.5 percent rise from November 2002, when the amount was 9.6 billion euros. The Bank of Greece data also show that housing loans rose 26.4 percent in November 2003, to 25.80 billion euros, from 20.4 billion in November 2002. Consumer loans requiring proof of purchase rose 10.2 percent in November in 2003, while, in November 2002, the rate of growth was a negative 1.4 percent compared with November 2001. This particular category of loans was showing a strongly negative trend until last summer, after which things began to improve. According to market analysts, the reversal of the trend in consumer loans requiring proof of purchase and additional documentation, such as proof of income tax payment, is the result of consumers not being able to use their credit cards because they have approached, or exceeded, their credit limits. Bank of Greece economists estimate that total household indebtedness has been increasing at an accelerated pace since restrictions on consumer loans were lifted last June. According to the bank’s data, total household indebtedness was equal to 28 percent of the country’s gross domestic product (GDP). Even though private debt is still nowhere near eurozone levels – where the average is between 48 and 50 percent of GDP – the central bank is worried about the rate of increase. In this case, it appears the Bank of Greece failed to foresee the latest trend. Last summer, it estimated that lifting the limits on consumer loans would not accelerate their increase. This prediction has now been proven wrong. On the other hand, the government has every reason to be satisfied, because, through the loans, strong demand persists, contributing toward maintaining the illusion of a prosperous
