Interest rates are rising, the government's reaction is still awaited

The average effective interest rates on loans last year ranged from 5,82 to 7,34 percent per month, while for citizens they were from 7,54 to 8,71 percent and for the economy from 5,25 to 6,05 percent, which is the highest level in the last five years according to data from the Central Bank (CBCG).

The new governor Irena Radović immediately after assuming that position in December, said that she was concerned about the rise in interest rates and that in the following period, in the negotiations with commercial banks, she would take care to influence the policy of interest rates. Until now, it has not been officially announced how the CBCG can influence the interest rate, nor did this institution answer the questions of "Vijesti" about what specifically and when the CBCG can do to lower interest rates, as well as how much money the banks have earned in the last five years. from interest on loans.

In a statement for TV "Vijesti" in mid-December, Governor Radović said that there is room for reducing interest rates on loans.

"When you look at the profit of commercial banks, it is over 10 million euros for the last 130 months. This means that there is enough space for a more proactive, agile approach and, of course, cooperation on both sides to enable favorable and better conditions for the functioning of the Montenegrin economy and, of course, for the standard of citizens," said Radović.

The record was in 2014.

The average interest rate in 2019 was slightly lower than now, but in 2020, during the pandemic, there would be a greater drop to averages of 4,77 to 6,09. In 2021, there was a slight increase in interest rates, and from 2022, when the reference interest rate and EURIBOR (price of money on the European market) also increased, a more significant increase would begin. In the past two years, the European Central Bank has increased the reference interest rate in order to reduce inflation. At the end of last year, this institution announced that it will no longer work because inflation has stopped at the usual percentages and the rise in interest rates has reduced lending, which slows down the European economy.

In the last 15 years, interest rates in Montenegro were the highest in 2014, when the total average effective interest rate per month was from 9,02 to 10,77 percent, and for citizens from 11,05 to 12,21 percent. EURIBOR then amounted to about 0,4 percent.

In the middle of 2014, the Assembly gave up on the adoption of amendments to the Law on Obligations, by which the then SNP deputy Aleksandar Damjanović proposed to limit interest rates. The CBCG then stated in its opinion that it recommended the banks to do this by the end of September of that year, as well as that it would conduct analyzes that would show how interest rates should be limited.

At the beginning of 2015, the then prime minister was concerned about the interest rates Milo Djukanovic and the Minister of Finance Radoje Žugić. After that, he was the then governor of the Central Bank Milojica Dakić announced that they are preparing a law on limiting interest rates, the draft of which will be ready by the end of June.

In July 2015, the CBCG Council determined the working version of the Draft Law on the highest allowed interest rates, which it sent to the Government. At that time, it was proposed that the highest allowed annual legally contracted interest rate for banks should be the average effective weighted interest rate on newly approved loans, in a six-month period, increased by 33%.

However, the interest rates are soon decreasing and without the law. Žugić, as governor of the CBCG, said in 2017 that they were abandoning this law, because the banks had lowered the rates themselves.

The question for the new governor is whether the CBCG can propose the same law again and whether interest rates can be limited on that basis.

Record deposits, low interest on savings

The possibility of the state's influence on interest rates has been brought up again after last year's increase. The average interest rate on deposits is 0,3 percent, because most banks are sufficiently capitalized and do not attract new savings. One of the exceptions is Prva banka, which offers interest on term savings of four percent. Total deposits in banks now amount to 5,5 billion euros, while total approved loans are worth four billion.

The banking sector has repeatedly announced that the six-month EURIBOR, the reference interest rate, had a negative value until June 2022, and that it has since increased to four percent, as well as that higher interest rates are influenced by the credit rating of Montenegro, liabilities and the costs prescribed by the CBCG,...

Total income from fees and commissions amounted to 31 million euros on December 12, 2022, and recorded a growth of 117,9% in the observed one-year period. Of the total income from fees and commissions, the largest part refers to fees from payment transactions (34,6%) and fees from cards and ATMs (46%)", said the CBCG to "Vijesta" at the beginning of March 34

IMF: A restriction would not produce results

Head of the IMF Mission for Montenegro Srikanth Seshadri at the beginning of last week, at a joint press conference with Prime Minister Milojko Spajić and Governor Radović, he said that he could resort to limiting interest on loans, but that it would not give results because banks could charge higher fees and that international experience shows that it is not profitable.

The IMF indicated that the widening gap between interest rates on loans and interest rates on deposits is fueling strong profits in the banking sector.

"High levels of liquidity, high market concentration in the banking sector, limited opportunities for profitable lending, as well as challenges for local depositors to take advantage of higher returns abroad or their "tendency to favor the domestic market" are likely drivers of low deposit rates. In this sense, the development of the retail market of government bonds would help to provide diversification for savers", is the recommendation of the IMF.

The IMF noted that the widening spread between interest rates on loans and interest rates on deposits has fueled strong profits in the banking sector.

At the beginning of last year, "Vijesti" was informed by the CBCG that, according to preliminary data, at the end of December 2022, commercial banks operated with a profit of 85,7 million euros, which is 34 million more than in 2021, when banks had a profit of 51,7 .XNUMX million.

Mugoša raised the issue of high interest rates before the Committee for Economy

Member of the SD Boris Mugoša requested a special thematic session of the Parliamentary Committee for Economy, Finance and Budget regarding the rise in interest rates.

"The board accepted my initiative to soon hold a hearing where representatives of the Central Bank, the Association of Banks and others will be invited on a topic that will also refer to the level and movement of interest rates on loans and deposits and fees (commissions) in the banking sector. I believe that this is an extremely important topic that many citizens and businessmen are interested in", said Mugoša to "Vijesta".

As he stated, it was agreed at the committee that in order to more effectively prepare hearings and have a more adequate discussion at the session itself, the Committee, in accordance with the Rules of Procedure of the Assembly, would ask the Central Bank to prioritize information for the Committee on various aspects of the functioning of the banking system.

309,4 million in 2022 from interest, fees and commissions.

At the end of 2022, net interest income at the level of the banking system of the system amounts to EUR 170,6 million, and recorded a growth of 15,3% in a one-year period, while for the same period net income from fees and commissions amounted to EUR 52,3 million and recorded a growth of 38,4% in the observed one-year period.

"At the end of 2022, the total interest income at the level of the system amounts to 191,5 million euros, recording a growth of 12,4% in a one-year period. In total interest income, the largest share is interest income on loans granted to citizens and privately owned companies (75%).