Ahmet Ismaili, Governor of the Central Bank of Kosovo (BQK), has forecasted a continued decline in loan interest rates during 2025, following a downward trend observed over recent years. As of November 2024, the average loan interest rate dropped to 6.02%, while the gap between loan and deposit rates narrowed to 3.15%.
Reasons Behind the Decline
The reduction in income from banking fees and commissions, which decreased from 26% to 21% of total bank revenue between 2023 and 2024, highlights increased competition in the financial sector. Governor Ismaili expects this trend to persist, further reducing borrowing costs for consumers.
“We anticipate banks will continue addressing the gap between deposit and loan rates. The financial environment remains favorable for lowering fees and interest rates,” said Ismaili.
Growth in Lending
In 2024, lending saw a remarkable growth of over 15%, reaching €5.7 billion, with €3.4 billion allocated to businesses and €2.3 billion to households. Household loans increased by 20%, primarily for investment purposes rather than consumption.
The loan-to-deposit ratio reached 85%, one of the highest levels historically, underscoring the banking sector’s commitment to supporting Kosovo’s economy.
Financial Intermediation and Loan Quality
Low levels of non-performing loans and a strong loan portfolio quality have been noted as positive indicators by the BQK. Loan rates for businesses have exceeded the regional average, offering substantial support to small and medium enterprises. Meanwhile, household lending is nearing regional averages in financial intermediation.
Outlook for 2025
Governor Ismaili expects the downward trend in interest rates to continue in 2025, fostering more favorable conditions for borrowers. Increased client repayment capacity and intensified banking sector competition are anticipated to play pivotal roles in sustaining this momentum.
This development is projected to positively impact Kosovo’s economy by enabling better access to affordable credit for both individuals and businesses, further supporting growth across key sectors.
