Jewell: IMF opposes dictating interest rates to banks and imposing an absolute moratorium

SARAJEVO, (Patria) - The banking sector in Bosnia and Herzegovina plays a crucial role in helping the economy overcome and eventually recover from the crisis caused by COVID-19. The Banking Agency of the Federation of BiH (FBA) and the Banking Agency of Republika Srpska (BARS) have announced a targeted moratorium on loan repayments for individuals and legal entities who have lost their income as a result of the pandemic. The IMF strongly encourages banks to continue actively participating in these programs, according to a statement by Andrew Jewell, the International Monetary Fund's Resident Representative in Bosnia and Herzegovina.

"However, as the IMF Executive Board has also emphasized, the Fund is against an absolute moratorium applied to all debtors, regardless of their financial situation. Legal and natural persons who are able to pay their debts should continue to do so. This will ensure that banks are able to provide new loans to the economy. In addition, to encourage banks to lend more, the authorities are considering credit guarantee schemes where the government assumes a significant portion of the risk of a new loan. This is the right way to stimulate additional lending to the economy while preserving the functioning of the financial sector," says Jewell.

The IMF, he adds, strongly opposes all proposals that dictate to banks the interest rates they charge on their loans.

"Banks, like other economic actors, are facing unprecedented challenges and are certain to incur losses in 2020. To protect debtors, the FBA and BARS have already prohibited banks from increasing interest rates on remaining loans and from charging additional fees during the moratorium period. Imposing an absolute moratorium and prescribing interest rates below market value would increase banks' losses, reduce their liquidity, and weaken the banking system. The risk of negative spillover effects into the financial sector is something we are closely monitoring. The global financial crisis originated in the financial sector and spread to the real economy. Now the situation is reversed because the crisis has hit the real economy and there is a risk of it spreading to the financial sector. Historically, we know that when something like this happens, the recovery that follows the crisis is much slower," Jewell states.

He adds that after approving 333 million Euros in emergency assistance to Bosnia and Herzegovina on Monday, the IMF will now focus its attention on negotiating a new, multi-year arrangement with the authorities.

"The independence of the FBA, BARS, and the Central Bank of BiH will be of utmost importance in any new arrangement," he concluded.