ADMINISTRATIVE REGULATION OF INTEREST RATES ON BANK CREDITS AND DEPOSITS – PROS AND CONS

Abstract

The purpose of this article is to formulate by using well-grounded and solid arguments why such decision would rather hamper than improve the worsening business situation on the local market. Global experience and observations on the local market reveal that determining interest rate levels is based on purely market mechanisms and each inadequate intervention in the market logic of those processes would affect not only banks’ long-term strategies and policies on interest rate risk management and profitability but the business environment too by making access to fresh credit difficult for business operators. This is why the Central Bank ought to aim at promoting to commercial banks the necessity of building a comprehensive and adequate policy on managing interest-sensitive assets and liabilities that provide maximum profitability of the bank’s portfolio when risk levels have been adequately assessed. This is the only way to achieve a well-balanced relationship between business operators and commercial banks