In Montenegro, banks are significantly relaxing household lending criteria as competition for borrowers intensifies. The focus has shifted towards consumer loans, refinancing options, and property purchases, which have become key areas for credit expansion.
The Central Bank of Montenegro’s recent lending survey for the second quarter indicates that overall household lending standards have reached a net figure of -43.13%, reflecting a notable easing in conditions. This trend is expected to persist into the third quarter, according to bank forecasts.
The most pronounced changes are observed in consumer and general household lending, where the net figure mirrors the overall easing at -43.13%. In contrast, mortgage lending standards have a less aggressive net figure of -14.32%, suggesting that banks are prioritizing unsecured loans over housing finance.
Increased competition among lenders is cited as a primary factor behind this easing. Banks report a more favorable economic outlook, reduced perceived collateral risks, and an increased willingness to take on risks as contributing elements to the shift in lending practices.
Concerns regarding funding costs and non-performing loans are not seen as significant barriers at this time. Borrowers are already experiencing the benefits of these changes through lower lending margins, relaxed collateral requirements, extended loan maturities, and improved grace periods. The net easing in interest margins reached -31.68% during the second quarter.
Mortgage borrowers have also benefitted from eased requirements related to deposits and borrower contributions. Regulatory changes are anticipated to further enhance this trend, with banks predicting a net -28.80% easing effect on consumer and household lending standards in the upcoming quarter.
Despite these positive developments, demand for loans has been growing at a slower pace than the supply of credit. Overall household loan demand increased by just 3.35% in the second quarter; however, banks expect a stronger surge of 18.90% in the third quarter. Mortgage demand showed more resilience, rising by 14.80%.
The motivations behind household borrowing indicate evolving market dynamics. Refinancing existing debts has emerged as the strongest demand driver at 18.90%, followed closely by property purchases and durable consumer goods purchases at 14.80% each. Rising wages contributed to borrowing needs by 14.52%, while better employment conditions added another 10.41%.
The emphasis on refinancing is particularly noteworthy, as banks are not solely targeting new borrowers but also seeking to attract existing customers with debts from other institutions by offering lower margins and more flexible repayment options.
This competitive environment alters the landscape of household banking significantly. For lenders, refinancing provides an opportunity to grow their loan portfolios without relying solely on new borrowers or consumer demand. For borrowers, it presents a chance to lower financing costs or reorganize monthly payments.
However, heightened competition also introduces potential risks. Should banks continue to decrease margins and relax lending terms while household demand accelerates, maintaining high underwriting standards will be crucial.
The property market adds complexity to this scenario as housing purchases remain a critical driver of loan demand. Banks have noted improving conditions within the property market as supportive of their lending activities.
This development suggests that stronger mortgage lending could further stimulate demand in an environment already influenced by increasing incomes, foreign investments, and limited housing supply in various coastal and urban areas.
Currently, the predominant trend is competitive rather than systemic among Montenegro’s banks as they transition from a phase characterized by ample liquidity to one increasingly focused on effectively deploying that liquidity.
The emerging question revolves around which bank will secure borrowers rather than simply whether households can access credit—highlighting how far lenders are willing to go in terms of pricing and lending conditions to attract customers.
