Will interest rates on loans drop in 2024?

After several years of record low interest rates globally and in Serbia, and consequently low profits for banks, that was not the case last year.


Banks in Serbia generated a profit of 865 million euros in the first nine months of 2023, more than in the whole of 2022, which was otherwise a very good year for banks.

Banks were making so much money that the governments of some countries decided to impose extra profit taxes on them in various forms.

The National Bank of Serbia (NBS) and Serbian government did not opt for that, but the central bank limited the interest rate on housing loans indexed in euros, which, according to the NBS, because of which the banks will lose about 10 percent of their estimated profit.

How did the banks generate so much profit and will interest rates on loans finally start dropping this year?

As economist Đorđe Đukić explains, the increase in bank profits last year is a consequence of the increase in interest rates on loans significantly above the increase in interest rates on savings.

In other words, banking margins, i.e. the difference between passive and active interest rates, are growing. Đukić adds that 2024 could also be a good year for bankers if the ECB’s policy of high interest rates continues.

“If interest rates grow again from March, bank profits will be even higher. Banks in Central and Eastern Europe have generated a return on capital of over 12 percent, which is unimaginable in the biggest EU Member States. 12 percent return on capital is a strategic goal of many banking groups in this region,” says Đukić.

Interest rates directly depend on inflation. The higher the inflation, the more the central bank has to raise interest rates and keep them that high for longer periods of time.

According to the projections of the European Central Bank from the last meeting in December last year, the average inflation in 2023 was 5.4 percent, and it is expected to decrease to 2.7 percent in 2024, further falling to 2.1 percent in 2025 and to 1.9 percent in 2026.

Although inflation in Europe is on the decline, the ECB’s board of governors has assessed that it has remained “too high for too long”.​

“Euribor is just under four percent and three-month and six-month Euribor are very similar, which indicates that bankers do not expect a significant reduction in interest rates for now. I expect that interest rates will drop only in 2025,” assesses Vladimir Vasić, a financial expert and former secretary general of the Serbian Association of Banks.

(Danas, 03.01.2024)


This post is also available in: Italiano

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