The Action for Social Justice (ASP) has recommended that the Ministry of Finance consider implementing a maximum interest rate for loans, applicable not only to banks but also to other lending institutions, such as microcredit organizations.
ASP emphasized that this recommendation aims to protect borrowers from the exorbitant interest rates they have faced for years.
“While the Ministry of Finance is concluding a public discussion on amendments to the Law on Credit Institutions, the issue of high interest rates imposed by banks, aimed at maximizing profits, remains a concern for citizens and businesses,” stated ASP in a press release.
Supporting their claims, ASP highlighted that eight banks operating in Montenegro reported an undistributed profit of €230 million at the end of the previous year, with three banks declaring dividends totaling around €26 million.
Currently, the average effective interest rate for loans from banks is about 7%, while microcredit institutions charge over an astonishing 20%. ASP raised concerns about whether such rates could be classified as usurious. Meanwhile, banks hold significant deposits from citizens and businesses, offering minimal interest rates of around 0.5% on these deposits.
The stark difference between borrowing and lending rates is one parameter to consider when determining a cap on interest rates, alongside other factors influenced by both the domestic and European banking markets.
ASP argued that the maximum interest rate should be reasonable and optimal, rather than usurious and excessively profit-driven. They suggested that this should be defined through collaborative agreement among all stakeholders, either as a specific chapter in the Law on Credit Institutions or through amendments to the Law on Obligations, which already includes provisions on loan agreements.
The recent draft law on interest rates for consumer loans, currently under parliamentary procedure, is deemed insufficient to protect citizens and businesses from excessive rates. ASP noted that it only addresses consumer loans and ties the maximum rate to the average effective interest rate plus 100%.
For instance, with the current effective rate at approximately 7%, the proposed cap could reach 14%, benefiting the banking sector rather than the citizens and businesses of Montenegro. Therefore, the government must provide solutions that serve the public interest, not just the interests of profit-makers.
Additionally, ASP proposed that ownership in Montenegrin banks should be fully transparent. Domestic credit institutions should be legally required to disclose the ultimate owners, individuals who benefit financially from such ownership, to enhance ownership transparency and increase scrutiny over the source of funds.
Currently, instances exist where ultimate owners are concealed behind firms registered in offshore zones or through custodial accounts, alongside cases where ownership is more or less transparent and known.
