Significant growth in the use of consumer credit

Consumer credits have seen over the last three years the most significant growth and reached in the first quarter of 2007 a share of 12.3% of the total amount of loans granted by banks. The volume of consumer credits went up from MDL 80.9 mln in 2004 to MDL 1.82 billion in Q1 2007. Economic analyst Veaceslav Ionita told Monday, May 14 the Economic Press Club meeting that this essential increase in the volume of consumer credits resulted from the constant inflows of remittances transferred by Moldovans working abroad. “It has taken us two years to understand that we have enough money to spend them, and another two to start borrowing”, the expert said. According to Ionita, the household consumption expenses are chiefly depending not on the way the country’s economy evolves, but on the enormous amount of remittances transferred over these three years. “People feel comfortable, have a positive expectations about their future and this makes them optimistic and inclined to spend more and more”, Ionita concluded. However, the MDL 1.8 billion loans are considered by experts, including by the National Bank of Moldova (NBM), a small amount compared to the neighbour countries. Therefore, it looks more like a start for the up-coming massive expenditures by Moldovans. The director of NBM Market Operations Department, Nina Savin, mentioned that consumer credits, as an influencing factor in the development of Moldova’s economy, can stimulate production (in case consumers purchase made-in-Moldova goods), but on the other hand they can disfigure the balance of trade (in case people buy imported goods). At the same time, a large volume of credits can stabilise high prices of a number of goods, thus fuelling the inflation. Because consumer credits have an influence upon the macroeconomic indicators, central banks worldwide try to supervise them rigorously and sometimes even impose restrictions, Savin said. According to her, NBM also monitors the volume of consumer credits; yet these types of loans are currently at an early stage and do not pose a threat to the central bank. Savin specified that restrictions are imposed by central banks when the share of consumer credits exceeds 40-70% of the total loans granted, depending on their influence on the macroeconomic indicators, including inflation rates. In such cases, one of the measures is to ban from borrowing the persons whose expenses to repay the borrowed money could reach 40-70% of his monthly earnings. Experts forecast that the use of consumer credits in Moldova will continue to grow, concurrently with the decrease in the rate of inflation and interest rate for consumer credit. At present, banks offer consumer credits at interest rates ranging from 19 to 27 percent. Loans repayable within 2 years do not require to be secured by pawn.