The European Central Bank (ECB) has announced it will raise key interest rates next month to curb inflation, which is why many citizens fear higher interest rates and higher loan installments. The Federation of Bosnia and Herzegovina (FBiH) Banking Agency says that changing the interest rate and changing the payment plan is possible only for previously agreed credit arrangements that include the possibility of changing the interest rate.
Before establishing a contractual relationship, they explain, the bank is obliged to acquaint the client with the details of possible changes.
Also, the lender is required to provide all necessary information on changes in the level of interest rates during the duration of the arrangement.
Taking into account the available information and expectations regarding interest rates, the Agency further states, as well as the fact that the possibility of changing the interest rate is foreseen when establishing the contract, changes in the reference interest rate should not jeopardize the solvency of most clients.
What will happen to loans that are contracted with fixed interest rates?
Regarding the fear of citizens about the possible growth of the loan installment, the FBiH Banking Agency notes that loans previously contracted with a ‘fixed’ interest rate will not be exposed to the risk of changes in reference interest rates.
The possibility of mitigating the effects of changes in interest rates later in the year
”Maintaining the stability and liquidity of our banking system indicates the possibility of mitigating the effects of changes in interest rates later in the year. According to current knowledge, the growth of the level of reference interest rates in the European Union (EU) and the euro area should be maintained at an acceptable level that will not jeopardize the growth of the Union’s economies or lead to recession,” they say from the Agency and add that reliable ranges or forecasts of the effects of ECB measures are not available.
When asked what will happen with existing loans, those with a currency clause in euros and the national currency, the Agency says that in the conditions of the ‘currency board’ interest rate levels are not tied to the currency of the loan, if it is euros and BAM.
”The ECB is still considered to have limited room to implement measures and increase interest rates to levels that will not lead the EU’s leading economies into recession or lead to the effect of fragmentation of interest rates across EU and euro area members. In addition to focusing on inflation-related risks at this time, stopping expansionary monetary policy and encouraging low reference rates was announced in the run-up to the pandemic,” the agency added.