All expenses in one - NBS adopts new way of calculating effective interest rate

To support the implementation of the Law on the Protection of Financial Services Consumers, the NBS Executive Board adopted Thursday (September 1, 2011) the Decision on Conditions and Manner of Calculating the Effective Interest Rate and the Layout and Content of Client-Targeted Forms, as well as the Decision on the Manner of Dealing with Client Complaints by Banks and Lessors and the National Bank of Serbia’s Action following Notification by Those Clients.

Both decisions will be implemented as of 5 December this year.

The first of the above two decisions changes the manner of calculating the effective interest rate (EIR) to reflect the Law on the Protection of Financial Services Consumers and the EU Directive pursuant to which EIR must include all credit or financial leasing- related costs to the client.

The new manner of calculation will encompass total payable credit-related costs, enabling better transparency of the actual price of the credit and informed decision-making.

Due to the above, EIR will be higher than it currently is for some types of credits, but this will have no bearing on the total outstanding payable.

To illustrate, EIR on housing credits calculated pursuant to the provisions of the new decision will also include the cost of mortgage placement, property appraisal and all credit insurance costs.

In case of credits where placement of deposit is required, EIR will also include foregone gains to the client.

This at the same time means that banks paying higher interest on deposits will be able to charge a relatively lower EIR, as an added element of competition easily understood by clients.

The second decision details the procedure to be followed by banks and lessors when dealing with complaints of natural person clients, as well as the procedure to be followed by the National Bank of Serbia after being contacted by the clients who are unhappy about the response of the service provider or who received no response at all within the 30-day deadline.

The decision also prescribes the manner and procedure of pronouncing measures, the criteria based on which the National Bank of Serbia will decide on the amount of fine to be imposed, and the procedure of mediation by the National Bank of Serbia, reads a statement published on the official website of the National Bank of Serbia.

Narodna banka Srbije Beograd

National Bank of Serbia

NBS

effective interest rate

interest

interest rate

loan

leasing

financial leasing

EIR

Law on Protection of Financial Services Consumers

mortgage

housing loan