In Bosnia and Herzegovina (BiH) and the Federation of BiH (FBiH), there are no reasons for wider and significant changes in the level of interest rates for the rest of the year. As a basic rule for our market, the relationship between supply and demand for money in FBiH is still stable, and the current changes refer only to loans with contracted variable interest rates, the Banking Agency of the FBiH (FBA) said in an interview.
The announced changes in the credit and monetary policy of the European Central Bank (ECB) had the first effects on the growth of interbank interest rates in the European Union (EU). Currently, the primary goal of the ECB is to stabilize financial markets and reduce inflationary pressures.
”In the current quarter, indirect and limited effects are expected on our market through the adjustment of interest rates for loans that were previously contracted and tied to one of the reference interest rates, most often from the Euribor group. The key risks are still related to the sources of inflationary pressures, energy, and food prices,” the FBA said.
Variable-rate contracting, as they say in FBA, is an option that carries potential risks and benefits for each contracting party. Commercial banks in BiH, as part of their loan offer, offer a choice of fixed or variable interest rates. FBA emphasizes that for users of financial services, key information must be presented in the “pre-contractual” phase. In practice, in the offer of an individual credit institution, the fixed interest rate is higher compared to the offered variable interest rate, and this difference increases with the maturity of the offered loan.
”By contracting a variable interest rate, the loan user assumes the risk of a possible increase in the interest rate, usually up to the level stipulated in the contract. The rules related to contracting loans and forming interest rates are established by the Law on the Protection of Users of Financial Services and by-laws of the FBiH Banking Agency. Banks are expected to fully comply with the aforementioned and other laws related to the protection of users’ rights. In the framework of banking supervision, the level of compliance is monitored and appropriate measures are taken. Abuses were not recorded,” the FBA stated.
The price of money from the EU, as they added, is partially transferred to BiH through a series of economic dependencies and connections. ECB measures do not have direct effects on our financial system. Nevertheless, the indirect effects of macroeconomic conditions and measures from the EU are transferred to our market through the financial operations of commercial banks and the Central Bank of BiH, the “currency board” arrangement (BAM-EUR link), trade exchange, and the existing exchange deficit, the level of foreign remittances, and a number of others economic factors and connections.
Also, part of the banking groups operating in BiH is also under the supervision of the ECB, according to the headquarters of the group, in accordance with EU rules. The change in the reference rate from the ECB, except for the interbank markets within the EU, affects the interest rate levels for immediate and optional refinancing within banking groups that operate outside the EU, the interest rate policies of those groups that are linked to Euribor or other parameters from the EU.
”Reference rates from the Euribor group are used when agreeing on variable interest rates for loans, but also for bank financing sources (credit lines, deposits, optional refinancing, etc.). In the period up to 2010, there was a significant dependence of our banks on financing sources that had variable elements related to Euribor rates or other parameters,” the FBA added.