Prolonged political crisis, in Kosovo, interest rates increase and the number of loans decreases
Interest rates in commercial banks in Kosovo have increased in the last month. This has further burdened the budgets of Kosovars. Some banks offer loans with interest rates above 7%, while for businesses the rate has become 10%.
Former CBK Governor Fehmi Mehmeti, now head of the Research Institute for Economics and Finance, cites several factors. According to him, a CBK decision had an impact, followed by inflation and the political situation with the failure to establish institutions.
"First of all, the CBK decision. We know that the CBK does not set interest rates directly, but through various regulations, mandatory reserves and capital requirements, this affects the cost of banks. So far in August of this year, when the interest rate was increased, the adequacy was 8 in relation to the first class and 12 in total. Since August of this year, the CBK has increased this capital adequacy from 10 to 14% in this case, so the bank must hold more reserve capital for each loan it grants. This means that they have less space to grant new loans. The cost of capital increases because shareholders and banks must invest a lot of money in Kosovo to protect the new rates. Interest rates increase to compensate for this block of bank capital and these usually transfer this cost to their clients," he said.
Another factor he mentioned was inflation. "Another factor is inflation, banks raise rates to increase purchasing power and to reduce the risk that savings and credit will lose value. When inflation increases, savings in banks have less value, citizens demand higher returns, banks increase interest rates on loans to protect themselves, at the same time high inflation increases the risk of non-payment by citizens due to the higher expenses they have," he said.
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