Montenegro’s banking sector is showing mixed interest-rate trends, with the average cost of existing loans declining while newly approved credit remains more expensive than a year earlier.
The average effective interest rate on total outstanding bank loans stood at 6.11% in May 2026, decreasing by 0.23 percentage points year-on-year. The corresponding average nominal interest rate declined by 0.20 percentage points compared with May 2025, reaching 5.61%.
New Lending Costs Increase During May
New borrowers faced different conditions compared with holders of existing loans. The average effective interest rate on newly approved loans reached 5.98% in May 2026, increasing by 0.13 percentage points compared with the same month of 2025 and by 0.23 percentage points compared with April. The average nominal interest rate on new lending rose to 5.46%.
The difference between existing and new lending rates reflects the slower adjustment of existing loan portfolios, which include loans issued under different market conditions, with varying combinations of fixed and variable rates, maturities and borrower profiles. New loan rates provide a more immediate indication of current credit market conditions.
Companies Receive Lower Rates Than Households
Corporate borrowers continued to receive more favourable lending conditions than households. The average effective interest rate on newly approved loans to companies was 5.17%, compared with 6.91% for loans to individuals. Corporate lending rates declined by 0.05 percentage points from April, but remained 0.21 percentage points higher than a year earlier. The monthly decrease indicates some competitive pressure among banks in business lending, although the annual comparison still shows higher financing costs.
For households, the effective interest rate on new loans decreased slightly, reaching 6.91%. The rate was 0.02 percentage points lower year-on-year and 0.07 percentage points below April 2026.
Borrower Profile Influences Financing Costs
Differences between corporate and household lending rates reflect factors including loan size, collateral requirements, administrative expenses, repayment periods and credit risk. Companies with stronger financial statements, contracted revenues or real-estate collateral may secure more favourable financing conditions, while unsecured retail lending generally carries higher pricing.
Deposit Costs Remain Low and Support Bank Margins
Banks continued to pay limited returns on deposits. The average effective interest rate on total deposits was 0.32%, creating a difference of 5.79 percentage points between average lending and deposit rates. The interest-rate spread narrowed compared with a year earlier, when it stood at 6.06 percentage points, but remained supportive of bank interest margins. The high share of demand deposits with little or no remuneration enables banks to maintain profitability even as rates on existing loan portfolios decline.
Rising Credit Demand May Increase Funding Pressure
The expansion of lending activity could increase pressure on banks to secure additional stable funding sources. Loans have grown faster than deposits, pushing the banking sector’s loan-to-deposit ratio to 0.97.
As available domestic liquidity becomes more fully utilised, banks may need to offer higher rates on term deposits to attract longer-term funding, which could gradually increase financing costs. Borrowers are receiving only partial benefits from lower rates across existing loan portfolios. While outstanding loans are becoming less expensive, newly approved financing remains relatively costly, particularly for households and smaller companies with limited collateral capacity.
