Banks in Bosnia and Herzegovina (BiH) have announced to citizens that they expect an increase in interest on loans, as part of the global trend of introducing stricter measures to stop inflation. In the past period, interest rates have also increased in some countries of the region.
For the first time after 11 years, the European Central Bank (ECB) also decided to raise interest rates, which on July 21st increased interest rates by 0.5 percentage points and plans new increases this year.
Another blow with the rising cost of living
Tanja from central Bosnia took out a non-purpose mortgage loan with a repayment term of 20 years.
She was informed by the bank a few days ago that in August her monthly installment will be increased by almost 60 BAM (about 30 euros). Instead of the previous 426 BAM (about 213 euros), she will pay the bank 483 BAM (242 euros) per month, which represents almost a third of her monthly earnings.
The cost of living in BiH was 14.4 percent higher in May of this year compared to last year. Data from the Agency for Statistics of BiH show that the price of transportation has increased by more than 30 percent, food, and soft drinks by almost 23 percent, and housing and utilities by about 11 percent.
In June, the United States (U.S.) Federal Reserve raised the interest rate to the highest level since 1994. The ECB’s decision to increase interest rates will enter into force on July 27th, and the goal is to return inflation to the level of two percent in the medium term.
Loans with fixed rates remain the same
Citizens of BiH who have loans with variable interest rates expect higher monthly installments, while those who borrowed at fixed rates will not be affected by the new measures.
Berislav Kutle, director of the Association of Banks of BiH, claims that there should be no sudden jumps in interest rates, but also that growth is inevitable in the fight against inflation.
“Radical changes cannot be made, because that would destroy the economy. Changes in interest rates must be done gradually in a strategic way to avoid a recession,” he stated.
Kutle warns that if the war in Ukraine continues, there will be greater consequences in Europe, especially in underdeveloped countries such as BiH.
What can citizens do?
One of the options that should be available to citizens is changing the contract to a loan at a fixed interest rate.
”This is not only happening here, the whole region is affected. However, some banks will increase interest rates, and some will not, so it is logical for cliets to go where the interest rate is lower. All this is done to bring inflation under control,” says the director of the Banking Agency of the FBiH, Jasmin Mahmuzic.
Mahmuzic also believes that citizens should not feel the increase in interest rates on their household budgets to a greater extent.
Thus, for a ten-year loan in the amount of 100.000 BAM (about 50,000 euros), with an increase in the interest rate by 0.9 percent, the monthly installment would be increased by 80 BAM or 40 euros. In this case, the monthly installment would amount to 1.180 BAM instead of the previous 1.100.
”If that 80 BAM is crucial, then we have bigger problems than the loan itself. All this was announced and it is not up to us. However, it is difficult to overlook what will happen after the new year. What will happen with the war in Ukraine, energy, and how inflation will move,” Mahmuzic concluded.
E.Dz.
