The average deposit rate on households and corporate deposits for the region equals 1.4% and 0.9% in 2016, compared to around 5% and 4%, respectively in 2007.5 The correction is in line with the policy rate and lending rates adjustment, and reflects the natural response of the banks for preserving their profitability at acceptable levels. Yet, it seems that deposit interest rates in some of the countries in the region, in the members of the Euro Area in particular, are approaching the lower bounds. Albeit saving alternatives for the private sector in the region are limited, further drop in deposit rates might act as a constraint for further deposit growth. The falling opportunity costs can increase the propensity to hold cash or short-term funds in the banking system, thus eroding the quality of the financing sources and banks’ ability to provide more credit. Still, given that recent bank profitability indicators point to a gradual improvement in profitability, profitability concern will probably weigh less on the deposit interest rates. Nevertheless, in few of the countries (Croatia, Hungary, and Bosnia) profitability indicators are still worrisome. In addition, further decline of the ECB rates, for some of the countries might also pose challenges in this regard. 5  Interest rate data for Bosnia, Croatia, Serbia available since 2011, or 2012. Hence the 2007 figures do not include these countries, and Albania as well, for which sector by sector data is not available.
Chart: 3 Lending interest rate and the adjustment* Interest rates on enterpise loans, in %  18  Interest rates on household loans, in %  18  2015  SLO  2014  SRB  2013  ROM  2012  POL  2011  MKD  SLO  SRB  ROM  POL  MKD  LIT  0  LAT  2  0  HUN  4  2  EST  6  4  CZR  8  6  CRO  10  8  BUL  12  10  BIH  12  HUN  14  2015  EST  2014  CZR  2013  CRO  2012  BUL  2011  BIH  14  LIT  16  LAT  16  Change 2016 - 2007 in pp 0  -1 -2 -3 -4 -5  Policy rate  Lending rates  -6 -7 -8  Source: Central Banks’ internet pages. *Policy rates in Baltic countries are approximated with the ECB interest rate, while for Bulgaria, where currency board is in place, the interbank rate is used as a proxy. The ease of the lending rates, was probably important, but not sufficient prerequisite for enabling stronger credit financial flows in the region. Although in the last couple of years signs of credit recovery are visible in many of the countries, it is still tepid, and in some of the countries deleveraging of the private sector continues.