The Reasons for Additional Growth Limit of Consumer Non-Purpose Loans in the Banking Sector of Bosnia and Herzegovina

Abstract

The growth in consumer non-purpose loans leads to the reduction in BiH current account balance and amplifies the current account deficit. According to regression models, the commercial loan has the same effect on the current account. However, in dynamic VAR models, a commercial loan has, either neutral influence on the current account balance, or contributes to its mild growth. A commercial loan is necessary for BiH economy, because the private sector is the main factor of the economic growth, while a consumer non-purpose loan generates mainly demand for import. When a credit growth is very low, the credit is economic and not free good and additional need for the direct regulation of credit appears, especially in countries with underdeveloped financial market. The share of private companies in the credit distribution is reduced and from the economic point of view, redistribution of loans can be made only at the expense of consumer loans. Additional growth limit on the consumer non-purpose loan, which is composed of 74.2% of total consumer loans, and 34.9% of all bank’s loans (10/2016), is one of the preconditions for the decrease of current account deficit, economic growth and economic development acceleration.