Comparative Analysis of Interest Rates in Western Ballkan Countries, Kosova Perspective
IV. ANALAYS IS AND COMPARISONS OF INTEREST RATES WITH WESTERN
BALKAN COUNTRIES
Interest rates in WBC, for years have incited debate at academics and business circles. Interest rates on deposits and loans reflect the business environment where banks operate.
https://dx.doi.org/10.22161/ijels.4.1.4 ISSN: 2456-7620 The following section reviews interest rates (on deposits,
loans and the interest rate spread), as well as their trends
throughout the years.
Table.2: Interest Rates on Deposits
Countries 2008 2009 2010 2011 2012 2013 2014 2015
Albania 6.8 6.8 6.4 5.9 5.4 4.2 1.9 1.39
Kosova 4.4 4.0 3.4 3.6 3.7 2.4 1.1 1.15
Macedonia 5.9 7.0 7.1 5.9 5.1 4.4 3.7 2.88
Montenegro 3.8 3.8 3.7 3.1 3.3 2.9 2.1 1.46
Serbia 7.3 5.1 11.3 9.8 10.6 7.9 6.8 -
B and H 3.5 3.6 3.2 2.8 3.2 3.0 2.7 2.06
Source:World Bank,
Annual reports of National banks of respective countries, by years Initia lly in Kosovo interest rates on deposits in the banking
system, especially during the initia l years of the banking system establishment, have been relatively high therefore quite attractive for savings. The ma in reason behind this was lack of financia l assets in financia l ma rkets, given that deposits were the only source of financial inco me for comme rcia l banks. Afte rwa rds, especially during the last three to four years , there is a drastic decrease of interest rate on deposits. As seen fro m the table above, the interest rate on deposit from 4.4% in 2008 decreases to 1.1% in 2014, with tendency for further decrease. Th is due to increase of the financial supply by savings on one side, while c redit
offer fro m co mmerc ia l banks is limited, due to limited demand in economy for finantial assets on the other.
Co mpared with the countries of the region, Kosovo and Albania have the lowest interest rate on deposits which in the year 2015 was only 1.15% and 1.39% respectively.
Montenegro is the following one with 1.46%, Bosnia and Herzegovina with 2.06% and Macedonia with 2.88%.
Currently, the highest interest rate on deposit is offered by Serbia with 6.8% wh ich is three time h igher than the majority of the region.
The following section reviews interest rate in credit loans in different WB countries by years:
Table.3: Interest rates on bank credit to the private sector
Countries 2008 2009 2010 2011 2012 2013 2014 2015
Albania 13.02 12.70 12.82 12.43 10.88 9.83 8.66 8.7
Kosova 13.80 14.10 14.31 13.86 12.86 11.07 9.60 7.40
Macedonia 9.68 10.10 9.48 8.87 8.50 8.04 7.46 7.00
Montenegro 9.24 9.40 9.53 9.69 9.56 9.39 9.41 8.93
Serbia 16.13 11.80 17.30 17.17 18.20 17.10 14.80 na
B and H 6.98 7.90 7.89 7.43 7.33 7.04 6.64 5.79
Source: World Bank,
Annual reports of National banks of respective countries, by years Fro m the table above it can be concluded that the interest rate on loans in Kosovo despite the fact that it e xperienced a decline throughout the years fro m 13.8% in 2008 to 7.4% in 2015, it still re ma ins high. The highest interest rate on loans
is currently in Serb ia, A lbania and Montenegro while the lowest is in Macedonia with 7.0% and BiH with 5.79.
The following paragraphs describe the Loan/Deposit ratio in the region throughout the years.
Table.4: Bank Credit to Deposits (Raporti:Kredi\Depozit) Countries 2008 2010 2011 2012 2013 2014
Albania 54.80 61.11 58.71 57.06 54.79 53.61
Kosova 82.00 75.30 80.80 76.40 73.70 74.80
Macedonia 90.97 92.51 89.70 89.50 89.72 89.54
Montenegro 142.96 148.61 129.56 148.61 142.96 79.94 Serbia 109.34 116.81 119.98 116.81 109.34 119.84 B and H 141.32 137.26 124.60 115.33 111.57 106.03
https://dx.doi.org/10.22161/ijels.4.1.4 ISSN: 2456-7620 Source: World Bank,
Annual reports of National banks of respective countries, by years The loan/deposit ratio in Kosovo, e xpressed in percentage,
on average is one of the lowest in the region and varies fro m 82% in 2008 to 73.75% in 2013. A lbania is the only WB country with a lower ratio where the average varies fro m 61.11% in 2010 to 53.61% in 2014. The rest of the WBCountries have a higher ratio, na me ly Montenegro has a radio of over 148.61% in 2013.
It is quite interesting to treat the interest rate sppread, which indicates the diffe rence between the interest rate paid by the borrowers and the interest rate paid to the depositors.
In Kosovo, the net interest spread varies fro m 10.93% in 2010 to 6.5% in 2014. Fro m this it can be argued that Kosovo, regarding net interest spread remains in a stable position.
The following section presents the net interest spread between borrowers and depositors in WBC, throughout the years.
Table.5: Lending-deposit interest rate spread
Countries 2008 2009 2010 2011 2012 2013 2014 2015
Albania 6.2 5.9 6.4 6.57 5.46 5.66 6.74 7.3
Kosova 9.4 10.1 10.93 10.24 9.12 8.68 8.20 6.54
Macedonia 3.8 3.0 2.42 2.96 3.41 3.62 3.76 4.2
Montenegro 5.4 5.5 5.8 6.6 6.3 6.5 7.3 7.47
Serbia 8.8 6.7 5.97 7.41 7.63 9.15 8.00 -
B and H 3.5 4.3 4.73 4.64 3.68 3.96 3.97 3.17
Source: The Global economy.com The IMF,
Annual reports of National banks of respective countries, by year Author’s calculations As seen fro m the trend above, Kosovo has experienced a
slight narrowing of the Net Interest Margin, especially during the last year whilst being comparable with the ma jority of the countries in the region. In this co mparative analysis, BiH and Macedonia diplay the lo west difference noted between the two interest rates with respectively 3.17% and 4.2 % in 2015 while other countries re flect a larger interest rate spread.
Many authors draw direct lines between interest rates and non-performing loans. Therefore Fa rhan et.al (2012) emphasizes interest rates as the ma in ind icator of non - performing loans. While, Omba la (2013) e mphasizes that the increase of interest rates impact the bank’s perfo rmance, increases lending cost which burdens the borrower and reduces the capacity of the borrower to pay.
The follo wing section analyzes the level of non -performing loans from WB countries, throughout the years .
Table.6: Non-performing loansin WBC, throughout the years
Countries 2008 2009 2010 2011 2012 2013 2014 2015
Albania 6.6 10.5 14.0 18.8 22.5 23.5 22.8 18.2
Kosova 3.3 4.4 5.9 5.8 7.5 8.7 8.3 6.2
Macedonia 6.7 8.9 9.0 9.5 10.1 10.9 10.8 10.31
Montenegro 7.2 13.5 21.0 15.5 17.6 18.4 17.2 16.7
Serbia 11.3 15.7 16.9 19.0 18.6 21.1 23.0 21.58
B and H 3.1 5.9 11.4 11.9 13.5 14.9 13.5 13.7
Source: The Global economy.com The IMF,
Annual reports of National banks of respective countries, by year According to data from IMF as well as national banks from
respective countries, Albania and Serbia are the countries with the highest level of non-performing loans (NPL) on the region.
The average NPL for these countries is 7-8 percentage points higher than the average of the region with 15 -16%.
Kosovo has the lowest level of non-performing loans which in 2015 was the only country with a one dig it indicator with
https://dx.doi.org/10.22161/ijels.4.1.4 ISSN: 2456-7620 a total of 6.2%, wh ich in fact is in the average of the
analyzed period 2008-2015 with a total of 6.25%.
This is an important indicator which displays that in Kosovo, non-performing loans are not the cause of high interest rates on loans and the margin between them.