ECONOMY

Credit expansion remains high and rising in August

Total credit expansion in August was running at a rate of 20 percent compared with the previous year, provisional statistics released by the Bank of Greece yesterday showed, underscoring Greeks’ continual willingness to take on more debt even as some banks are taking steps to narrow the credit spread. Total borrowing increased by 20 percent year-on-year in August, while cumulative growth in the first eight months of the year came close to 11 percent, BoG said in its September-October economic bulletin. Credit expansion in the private sector remained unchanged at 21.4 percent in August. Loans outstanding at the end of August amounted to 82 billion euros. Despite a slowdown evident since mid-2001, the pace of credit growth continues to be robust, said EFG Eurobank Ergasias economist Platon Monokroussos. «Strong credit expansion is expected to underpin economic growth which, in turn, is seen as fueling the credit boom,» he said. The government is targeting a 3.8 percent increase in gross domestic product this year and the next, goals attainable only if consumer spending holds up. Mortgage and consumer lending continued to provide the momentum in credit expansion, with growth in both sectors surpassing 30 percent, BoG’s data showed. Mortgage loans rose by 39.3 percent year-on-year in August, up from 38.6 percent in the previous month, with the strong pace driven by consumer demand and banks’ aggressive marketing. Expansion in the first eight months of the year came to 23.3 percent. Low borrowing costs have helped to keep the construction boom going. Construction activity in July as measured by the volume of building permits recorded a 15.8 percent increase, data from the National Statistics Service yesterday showed. In the January to July period, permits approved rose by 9.7 percent. Consumer credit also continued to gallop ahead, posting a healthy 30.6 percent gain in August. Whether the pace can be sustained will depend in part on whether other banks will follow Alpha Bank’s lead and jack up their consumer loan rates. Alpha Bank last month unexpectedly pushed up its consumer loan rate by a percentage point. So far, other financial institutions have failed to jump on the bandwagon. The continued robust credit expansion could delay plans by the Bank of Greece to liberalize consumer and personal loans. Banks are currently permitted to give out consumer and personal loans of up to 25,000 euros and 3,000 euros respectively. Nicholas Garganas, BoG governor, last week said the credit ceilings constitute a «small anomaly» which could not be perpetuated for ever. He also announced measures to improve transparency in loan contracts which will come into force next year.