Business Stimulus (Bank Deposits)
Economies are extremely dependent on banks’ behavior in terms of available bank products. All economic specialists are well aware of the fact that particular bank behavior could have a positive as well as negative impact on the business.
After the stagnation and the negative tendencies in the Bulgarian economy, particular changes in banks’ policy towards its normalization were noted. There are many different types of bank influence on businesses in the form of practical economic incentives. In this article we will pay special attention to the available bank deposit products and their role as business stimulus.
Why does the tendency of decrease in bank deposits profitability help businesses?
There has been a considerable recent decline in deposits and savings profitability which could be an important incentive for economic recovery. It is a well-known fact that bank deposits represent the so called “alternative cost” of every investment, i.e. investors calculate the profit out of every investment on the basis of the momentary profitability of such products. That is why decreases in this profitability dissuade businesses from this type of investments stimulating the use of available financial resources in real business alternatives generating actual productivity.
That is what is happening on the Bulgarian market where according to the latest official data and analyses deposits and savings profitability has hit a record low ever since the start of the crisis in 2009. Tendencies suggest that this will continue until it reaches the levels before 2009 and this fact will certainly influence many people that are holding their available assets in such forms.
It is interesting to point out that even the introduced more than a year ago deposit interest tax did not reverse businesses and individuals to re-direction of their savings to alternative investment solutions (as per the initial scenario). Practically, individual savings hit a record high.
The above described tendency of deposits profitability decline could well be the very business incentive that could change the status quo. That would be extremely helpful for the national economy in two major aspects:
1) It will stimulate the active use of internal financial resources in the economy.
2) It will send a clear signal to all international investors regarding the actual recovery of the economy.
Time will show if deposits profitability decrease will fulfill its role as a business stimulus, but it’s beyond doubt that not only the economic logic, but also practice itself suggests that this should happen.