For the purpose of improving market liquidity in a period of general reduction of interest rates, the Federation of Bosnia and Herzegovina has enacted the new Law on Statutory Default Interest Rate (the “Law”), which has started to apply as of 14 March 2020.

As previously announced, the Law reduced the rate of the statutory default interest from 12% to 10%. Debtors who are late with their monetary payments will, beside the principal debt, have to pay the penalty interest at the rate of 10% per annum, calculated up to the day of the final payment. For calculation of statutory default interests for the periods shorter than one year the compound method will be applied.

In addition, the Law explicitly limits the amount of default interest that may be collected from a debtor, providing that the amount of the default interest cannot be higher than the amount of principal debt.

Calculation of the default interest will be done by a debtor’s commercial bank that will be entitled to charge its commission for the collected amount of the default interest.

The interest on debts originated before entry into force of the Law will be calculated according to the previously applicable legislation – with interest rate of 12% per annum. The Law applies to all debts becoming due for payment after its entry into force.

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