23/12/2024
At an extraordinary meeting held on 20 December, the NBS Executive Board adopted the Decision on Temporary Interest Rate Cap on Loan Agreements Concluded with Natural Person Consumers. The adoption of this Decision ensures the implementation of interest rate caps outlined in the Proposal of the Law on the Protection of Financial Service Consumers that will be on the agenda of the National Assembly’s first session in 2025. The NBS has adopted the Decision in order to protect financial stability and the standard of living, primarily for housing loan users, and to honour the announcements that interest rates on these loans will be limited to 5% after the expiry of the temporary measure from 2023. The Decision is of temporary nature and will remain in effect until the adoption of the Proposal of the Law on the Protection of Financial Service Consumers, but no later than the end of 2025.
The Decision stipulates that for existing and new loans with a variable interest rate, as well as for new loans with a fixed interest rate, the interest rate cannot exceed 5%. Currently, the effective interest rate, which includes all costs relating to the loan (insurance, certification of the pledge statement, mortgage registration fee, etc.), is limited to 6.65%.
In this way, we ensure, as previously announced, a gradual transition to the market interest rate after the expiry of the temporary measure, given that without this limitation, the interest rate on loans with a variable rate would, on average, be around 5.63%. It should be noted that the 4.08% limitation set by the temporary measure was introduced at a time when EURIBOR was still on an upward path. In October 2023, when that measure was enacted, EURIBOR reached its peak of 4.1%. Now, on the contrary, EURIBOR is on a downward trend, and currently, for example, the 6-month EURIBOR equals 2.6%. Therefore, the current market conditions support the expectation that the agreed interest rate on a large number of loans (we could say the majority) will fall below 5% by the end of 2025.
In addition to rate caps for housing loans, we have also set limits for cash and consumer loans, so that the nominal interest rate for loans approved in dinars cannot exceed 14.75%, and the effective rate, which includes all costs, cannot exceed 15.75%.
For credit cards and authorised overdrafts, the effective rate is limited to 17.75% and 19.75%, respectively. In the case of overdrafts, this means an immediate reduction of the rate by one third for all users of this product.
The adopted Decision demonstrates that the NBS is and remains committed to protecting the interests of financial service consumers. In this regard, we also expect the adoption of the new Law on the Protection of Financial Service Consumers at the first session of the National Assembly next year.
Governor’s Office
