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Analysis of Effects of Foreign Bank Entry on Credit Interest Rate Behavior in Serbia

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  • Đorđe Đukić

    ()
    (Faculty of Economics, Belgrade University, Serbia)

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    Abstract

    Following foreign bank entry, credit interest rates have been extremely high in Serbia compared with a reference group of countries: Croatia, Bulgaria and Romania. This is connected with monetary authorities poor predictions regarding the behavior of those banks in setting interest rates, creating an illusion that competition, per se, would rapidly result in decreasing interest rates; as well as undertaking monetary policy measures- such as an extreme increase in the reserve requirements rate--that contributed to unchanged or increased credit interest rates. The final outcome of poor predictions and measures undertaken by the National Bank of Serbia is limited to periodical appeals by its highest officials to citizens to consider the conditions under which they borrow from banks. However, under conditions of fully inelastic demand for bank credit and a cartel presence in the banking sector, such appeals are ineffective, merely reflecting an attempt to avoid responsibility for a possible wave of bankruptcies in the household sector. Only increasing competition among banks can lead to a significant decrease in credit interest rates in Serbia in the medium term. Empirical analysis shows that competition should be most intensive on the mortgage loan market.

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    Bibliographic Info

    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 54 (2007)
    Issue (Month): 4 (December)
    Pages: 429-444

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    Handle: RePEc:voj:journl:v:54:y:2007:i:4:p:429-444

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    Web page: http://www.panoeconomicus.rs/

    Related research

    Keywords: Interest rate; Foreign banks; Serbia;

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    1. by Thomas Reininger & Franz Schardax & Martin Summer, 2002. "Financial System Transition in Central Europe: The First Decade," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum, SUERF - The European Money and Finance Forum.
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