The European Central Bank (ECB) has announced that it will raise its key rates next month to curb inflation, that is why many citizens fear higher interest rates and higher loan repayments. The Banking Branch of the Federation of Bosnia and Herzegovina (FB-H) indicates that changing the interest rate and payment plan is only possible for previously agreed credit agreements that include the possibility of changing the rate of interest.
Before establishing a contractual relationship, they explain, the bank is required to inform the customer of the details of any changes.
In addition, the lender is required to provide all necessary information on the evolution of the level of interest rates during the term of the arrangement.
Taking into account the information available and the expectations regarding the interest rates, the Agency further clarifies that, in addition to the fact that the possibility of changing the interest rate is foreseen when drawing up the contract, changes in the rate benchmark interest rates should not compromise the creditworthiness of most customers.
What will happen to loans contracted at a fixed interest rate?
Regarding citizens’ fear of a possible growth in the monthly loan payment, the Banking Agency of the FBiH notes that loans previously taken out with a “fixed” interest rate will not be exposed to the risk of changes in interest rates. reference interest.
The ability to mitigate the effects of interest rate changes later in the year
”The continued 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, growth in the level of benchmark interest rates in the European Union (EU) and the euro area should be maintained at an acceptable level which will not jeopardize the growth of the economies of the Union nor lead to a recession,” they say of the Agency and add that reliable ranges or forecasts of the effects of ECB measures are not available.
When asked what will happen to existing loans, those with an exchange clause in euros and in national currency, the Agency replies that under the conditions of the “currency board”, the interest rates are not linked to the currency of the loan, if it is euros and BAM.
”The ECB is still seen as having limited leeway to implement measures and raise interest rates to levels that will not drive major EU economies into recession or cause the fragmentation effect of interest rates between EU and euro area members. In addition to focusing on inflation-related risks at this time, halting expansionary monetary policy and encouraging low benchmark rates was announced as the pandemic approached,” added the agency.