Bank Lending and Deposits Sample Clauses

Bank Lending and Deposits. As seen in Table 17, total credit volume at the end of 1998 reached $437 million, an increase of $190 since 1995, or an average of $63 million per year. This is a minute amount of bank intermediated credit for a $4 billion economy. The total expansion of credit amounted to only 1.7% of GDP over the three year Even this figure somewhat overstates the true flow of new bank credit into the economy, because part of the expansion of state bank loan assets merely represents the absorption of assets and deposits from three former FSU banks and credits given to state-owned companies between 1993 and 1995. Most of these assets are non-performing loans to state-owned companies, some of which no longer even exist. These assets are a burden to the banks and a hindrance to their privatization. The amount of these non-performing assets is not transparent so that a deeper analysis is difficult. However, some range can be deduced. State-owned bank loans expanded by $68 million over the three-year period, financed by $30 million in growth of their capital and $12 million in deposit growth. It can therefore be inferred that other liabilities of state-owned banks’ - probably some notes due the state - expanded by $25 million. It is likely that at least half of the growth in state-owned bank loans, some $35 million, was represented by these inherited assets. This would reduce the estimate of total new bank credit to the economy over the three-year period to $150 million - $50 million per year. This is completely inadequate for the economy’s needs. Furthermore, even this small amount of credit was supplied on highly unfavorable terms. Fully 98% of credits were short-term, with a maturity of less than 12 months and usually less than 6 months. Normal bank interest rates are 2-4% per month, even though the local currency is quite stable against the dollar. The foremost reason for the high cost and unfavorable terms of credit is a scarcity of loanable funds, which gives the banks a very high cost of capital. In western countries, household and business deposits - domestic savings - are by far the most important source of funds to the banking system. These plentiful funds allow the banks to have a low average cost of capital, and therefore lend on reasonable terms to businesses. Such deposits finance at least 80% of bank credit expansion in the In the Soviet system, however, household savings were theoretically unnecessary because the state took care of housing, education, and reti...