Montenegro’s banks significantly eased household lending conditions in the second quarter, with consumer finance, refinancing and property purchases among the main sources of credit demand. The Central Bank of Montenegro’s lending survey recorded a net -43.13% change in overall household lending standards, indicating a substantial easing. Banks expect a similar degree of easing to continue in the third quarter.
Consumer and other household lending recorded the same -43.13% net figure, while mortgage lending standards eased by -14.32%. Competition between banks was among the main factors behind the easing. Lenders also cited a more favourable economic outlook, lower perceived collateral risk and greater willingness to accept risk. Funding costs and non-performing loans were not identified as significant constraints.
Lending Terms Become More Flexible
Banks reported lower lending margins, easier collateral requirements, longer maturities and more favourable grace periods during the second quarter. The net easing in interest margins reached -31.68%. Mortgage borrowers also experienced somewhat easier requirements concerning deposits and borrower participation. Regulatory changes are expected to provide additional easing during the third quarter. Banks estimated a net -28.80% impact from regulatory changes on standards and conditions for consumer and other household lending.
Household Credit Demand Expected to Accelerate
Household demand for loans increased by 3.35% in the second quarter, while banks expect the increase to reach 18.90% in the third quarter. Mortgage demand recorded a stronger increase of 14.80% during the second quarter. Refinancing of existing liabilities generated the strongest demand signal at 18.90%. Property purchases and durable consumer goods each accounted for 14.80%.
Rising wages contributed 14.52% to household loan demand, while improving employment conditions contributed another 10.41%. The refinancing data indicate demand from customers seeking to replace or restructure existing borrowing, alongside demand from new borrowers. Lower margins, longer maturities and more flexible repayment structures are among the lending conditions reported as becoming easier.
Property Purchases Support Mortgage Demand
Property purchases remain one of the main drivers of household borrowing, while banks also identified improving property-market conditions as supportive of lending. Mortgage demand is therefore developing alongside household borrowing for property purchases, with rising wages and employment conditions also contributing to overall loan demand. As lending standards ease and household credit demand is expected to increase, banks’ lending decisions remain linked to their assessment of borrower and collateral risks.
