Credit ceilings could be done away with next year

The Bank of Greece yesterday indicated that restrictions on consumer and personal loans could be lifted next year on condition that the current slowdown in credit growth continues at the same pace and a forthcoming study can prove that Greek indebtedness has not become a major problem. Nicholas Garganas, governor of the central bank, said the present caps on consumer and personal loans, set at 3,000 euros and 25,000 euros respectively, represent «a small anomaly» in the financial industry which could not be perpetuated indefinitely. «We have made no decision at this moment on when to remove these ceilings [on consumer credit]. It will depend on three factors,» he said. The first consideration would be the pace of credit expansion in the coming months. Spurred by low funding costs, household lending in the last few years has accelerated by strong double-digit figures. According to the central bank’s data, credit expansion in June rose by 19 percent, down from a peak of 30 percent in March last year, but still considered a robust rate. The credit boom is still going on strong in consumer and mortgage lending, up by 32 percent and 39 percent respectively in June. Consumer credit growth last year remained above the 40-percent mark. While statistics pointed to a significant slowdown, levels were still high, Garganas said. «If the slowdown continues, the credit ceilings will very soon be lifted,» he predicted. A final decision will also depend on the degree of Greek households’ indebtedness. A study jointly conducted by the bank and research firm ICAP is expected to reveal the extent of household debt early next year. The launch of Teiresias, a credit bureau expected to help banks control their credit risk and monitor clients’ total exposure, early next year should help to pave the way for the lifting of credit curbs. Garganas also announced measures to improve transparency in banking transactions. The move came after a court in September took Commercial Bank to task for violations in its mortgage contracts. It called on banks to discontinue the current practice of charging a commission equal to 1 percent of the mortgage value. The governor’s act codifies existing requirements on transparency and restrictions and was already in motion even before the court ruling, Garganas said. The act, which comes into force on January 1, 2003, calls on banks to provide all relevant information to clients before they take out a loan and all through the period when they are servicing the loan. Banks can only charge commissions for administrative and organization costs for syndicated loans and for unused capital. They will need to respond to client complaints within 45 days.

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