With the aim of suppressing inflation, the European Central Bank (ECB) raised the interest rate four times since last year, and the banks in Bosnia and Herzegovina (BiH) followed suit.
The last increase in interest rates took place in March of this year. In the coming period, the ECB’s decision to raise interest rates is expected in June, and one of the proposals is to raise them by a quarter of a percentage point.
On the other hand, those who advocate the position that there should be no new increase in interest rates are getting louder. However, Berislav Kutle, director of the Association of Banks, believes that there will be no new increase in interest rates because the inflation rate is lower than expected.
“It is important to emphasize that the increase in interest rates in BiH was related to deposits and not to loans. Banks have no excessive reason to increase the interest rate on loans because the cost has not increased. With the fact that banks linked to EURIBOR have the legal possibility to raise the interest rate, but they should also take into account the demand for loans and the possibility of repayment, so it will depend from bank to bank,” says Kutle. The Federation of BiH (FBiH) Banking Agency points out that the measures adopted by the ECB do not have direct effects on the work or business policies of banks operating in BiH.
They add that minor changes are expected in 2023. “Average interest rates on new placements, at the level of the banking system, did not change significantly in 2022, and smaller changes are expected in the first half of 2023. Exceptionally, there have been changes in the level of interest rates for loans that were previously contracted and are linked to reference interest rates from the European Union (EU), not above the level that is considered significant in terms of the decisions made (up to 200 basis points or 2%),” the FBiH Banking Agency stated.
They add that the easing of inflationary pressures in BiH is certain, but that it is still not possible to predict all the effects of the slowdown of economic activities in the EU and globally.
“In this period, we do not expect a significant increase in average interest rates on new placements. We also expect a measured approach to risk management by banks and responsible adjustment of interest rate levels for loans with variable interest rates, as determined by the Agency’s decisions.
The Agency does not rule out the possibility of continuing to act according to established principles, following global trends, as long as there is such a need, that is until it is estimated that the risks for our market are reduced,” the Agency says.
They further state that during 2022, the Agency made decisions that sought to limit the risks and consequences of macroeconomic measures and disruptions on markets outside BiH.
“During the first six months of the implementation of the Decision on temporary measures to mitigate the risk of the interest rate growth, from October 2022, the general favorable level of interest rates on the market was maintained while avoiding an increase in the level of interest rates for new placements by banks,” the Agency concluded.
