Credit conditions tightened for businesses in Q1 compared to the previous quarter, according to banks’ assessments, while they eased slightly for households, as indicated by a survey conducted by the Central Bank (CBCG).
The CBCG report on Q1 survey results highlights that the tightening of credit conditions for the business sector was driven by increases in fees, commissions and interest margins, alongside reduced maximum loan amounts, shorter loan terms, and heightened collateral requirements.
Conversely, easing measures for households included extended loan terms and grace periods, relaxed collateral requirements, mortgage values, participation, and deposits, as well as slightly lower interest margins.
Looking ahead to Q2, banks anticipate further tightening of credit conditions for businesses, primarily influenced by rising fees, commissions, increased interest margins, and shorter loan terms.
“Banks expect credit conditions for households to ease, mainly driven by significant reductions in interest margins, as well as relaxed requirements for mortgage values, participation, and deposits. Moreover, when approving loans to retirees, banks may cover the cost of group life insurance policies,” the report states.
Regarding credit standards, they tightened for businesses in Q1 compared to the previous quarter, while remaining unchanged for consumer and other loans.
“Banks foresee a potential further tightening of credit standards for businesses, whereas credit standards for households are anticipated to be considerably eased,” the report adds.
Factors tightening standards for businesses include higher funding costs, increased non-performing loans, and reduced risk appetite among banks. Conversely, increased competition among banks, improved economic conditions, and reduced operational costs are expected to significantly ease credit standards for households.
Demand for loans from both businesses and households continued to rise during Q1, driven by increased financial needs for working capital, capital investments among businesses, and higher demands for refinancing and durable goods purchases among households, alongside rising wages and employment.
Looking forward, banks expect demand for loans from both sectors to continue growing significantly in Q2. They anticipate that the CBCG’s initiative to reduce interest rates on loans to individuals will further boost household loan demand.
Credit standards encompass criteria for loan approval and credit lines, defining credit type, sectoral or geographical priorities, collateral acceptability, and borrower creditworthiness. Credit terms include mandatory elements of loan agreements such as loan amount, interest rate, commission and fee costs, required collateral or guarantees, and term, determined based on borrower creditworthiness.
Since April 2018, the CBCG has conducted surveys on bank credit activity aligned with euro area central banks’ surveys, tailored to the Montenegrin market’s specifics. This research aims to provide insights into the key determinants of credit supply and demand for both businesses and households.
