Interest rates are soaring.

During the first nine months of this year, commercial banks in Kosovo have significantly increased interest rates on loans. Interest rates have gone from 6 to almost 7 percent, which is an increase of about 15 percent. Former Governor Fehmi Mehmeti says that the increase in interest rates is related to the policies of the Central Bank, inflation and the institutional crisis.

The average interest rate of commercial banks on loans increased by nearly 15 percent from January of this year to September.

While in January the average interest rate was 6.01 percent, in September it is 6.9 percent. However, in some banks it has gone up to 10 percent, depending on the type of loan.

The data also shows a decline in the value of loans issued in September. While in February the value of new loans was 230 million euros, in September it was 190 million euros.

Former Governor Fehmi Mehmeti says that the increase in interest rates is related to Central Bank policies, inflation and the institutional crisis.

"High inflation also increases the risk of non-payment by citizens, because their daily expenses are higher. This pushes banks to demand a higher risk premium and then we have higher interest rates. In summary, we will have an inflation-capital-interest relationship," said Mehmeti. "High inflation increases risk and reduces the real value of returns. The CBK reacts, increases capital requirements so that banks are stronger against risks."

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According to him, the increase in mandatory reserves that banks must hold has also had a major impact.

"Until this year, banks had a minimum of 8 percent or 12 percent capital in relation to risk assets. From this year, the CBK has increased this to 10 percent and 14 percent. In this case, banks must hold more reserve capital for each loan they grant. This means that they have less room to grant new loans, because in this case the cost of capital increases and that shareholders or parent banks must invest more money in Kosovo to maintain the new rates, and when interest rates increase, to compensate for this 'capital lock-up', banks transfer the costs to customers through higher interest rates," said former governor Mehmeti.

And the Central Bank said they have imposed a 2 percent surcharge on risky assets.

"Capital additions serve the purpose of strengthening the banking sector, namely the ability of banks to face risks in certain situations," a CBK response states.

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According to this institution, lending growth in the first half of 2025 was more accelerated compared to the previous year, especially in May, when lending increased by about 21 percent compared to May 2024.

But, according to the CBK, there was also an increase in the following months, at a level of up to 18 percent, compared to the same period last year.