Tuesday, 1 March 2022

HNB: Credit Institutions Generate €750m In Profit Last Year

ZAGREB, 1 March 2022 - Credit institutions in Croatia operated at a profit of HRK 5.6 billion (€750 million) in 2021, which is an increase of 108.8% on the previous year, the Croatian National Bank (HNB) said on Tuesday citing unaudited preliminary data.

In addition to the increase in profit, banking sector recovery resulted in the increase in profitability indicators so the return on assets grew from 0.6% to 1.2%, while the return on equity went up from 4.4% to 8.7%.

The effects of retained profit and targeted regulatory adjustments related to the pandemic in 2021 continue to be mirrored in the very high values of key indicators of banking system capitalisation. At the end of 2021, all credit institutions boasted total capital ratios exceeding the minimum 8%, while the total capital ratio of the banking system reached 25.6%.

Credit institutions’ liquidity measured by the liquidity coverage ratio remained high, totalling 202.5% at the end of December 2021. All credit institutions met the prescribed minimum liquidity requirements.

According to unaudited preliminary data, total assets of credit institutions increased by HRK 38.4 billion from 2020 (8.3%) and reached HRK 500.8 billion. Assets increased in most credit institutions.

At the end of last year, 20 banks operated in Croatia, employing 18,200 people.

(€1 = HRK 7.5)

Thursday, 27 January 2022

HANFA Head: 1,188 Accounts of Former, Current HNB Employees Being Checked

ZAGREB, 27 Jan 2022 - The HANFA regulator is checking the accounts of 725 current and 463 former employees of the central bank as well as other available accounts, with 529 transfers involving 26,940 stocks of credit institutions having been determined for 58 of the 1,188 former and current employees.

This was stated on Thursday by the head of the Croatian Financial Services Supervisory Agency (HANFA), Ante Žigman, at a thematic session of the parliament's Finance and State Budget Committee, entitled "HNB employees' trading in securities of banks supervised by the central bank", which was also attended by Croatian National Bank (HNB) Governor Boris Vujčić and his deputy Sandra Švaljek.

Žigman said that those transfers, registered by the Croatian depository agency SKDD, did not mean that all those stocks were traded but rather that the SKDD registered any change to the legal status of a transaction, such as transfer from one broker to another.

"That should be underlined, so that one does not think that all those stocks were traded," he said.

On 10 January, the Index news portal said that in the past 20 years more than 40 HNB employees had traded in the securities of banks supervised by the HNB, with more than 400 transactions worth more than HRK 10 million having been registered.

After that, on 12 January, HANFA launched an inspection to determine if HNB employees had violated the Market Abuse Regulation and the Capital Market Act, and if they had traded in banks' securities based on insider information.

HANFA said at the time that violation of the HNB Act and HNB's internal rules by HNB employees by trading in credit institutions' securities does not necessarily constitute market abuse in the sense of the Capital Market Act and Market Abuse Regulation.

As for possible violation of the HNB Act and HNB's internal rules, HANFA does not have the authority to launch an inspection, the agency said at the time.

Vujčić: No indication of insider trading

HNB Governor Vujčić said in his introductory address today that the HNB does not have indications that its employees had traded in securities based on insider information, which is a criminal offence, but he recalled having called on HANFA to investigate the matter and also having asked for internal checks to be made for 41 persons.

An internal inspection is currently under way into 31 persons, but it is not as nearly as thorough as inspections by HANFA because the HNB does not have access to SKDD data, said Vujčić.

On the other hand, five HNB employees who hold stocks and are not among the 41 employees have also come forward, Vujčić said.

There is no legal ban on holding bonds, says Švaljek

The current deputy governor, Sandra Švaljek, was in 2012 an external member of the HNB Council and at the time she invested in the Erste Bank corporate bonds. She said at today's session that neither at that time nor currently there were any legal restrictions for the Council's members to hold bonds.

Švaljek said there was a significant difference between shares and bonds and that possessing bonds has the nature of saving, explaining that she had not traded in those bonds but held them until their maturity, and that the yield earned had been defined in the relevant prospectus.

Švaljek said that she had been informed by her personal banker about the possibility of purchasing those bonds, and emphasised that the HNB Council had never discussed such matters.

"I am confident that this case has nothing to do with market manipulation regarding the bonds that I used to hold at the time when I was not employed in the HNB."

Responding to media claims about possible wrongdoing, the central bank said recently that Vujčić bought stocks of Riječka Banka and Zagrebačka Banka in the 1990s, when he was still not HNB vice governor or HNB Council member, and when the HNB Act did not forbid the HNB governor and HNB Council members to own stocks of the banks supervised by the HNB.

The HNB emphasised that it was the new HNB leadership that in 2000 initiated changes to the HNB Act which forbid the governor, HNB Council members and HNB executive directors to own stocks and shares in banks supervised by the HNB. Vujčić thus sold his stocks of Erste&Steiermärkische Bank, which in the meantime bought Riječka Banka, and of Zagrebačka Banka, in March 2001, a month before the entry into force of the HNB Act, which was reported by the media at the time.

Švaljek, who between 2000 and 2013 was an external member of the HNB Council, bought corporate bonds of Erste&Steiermärkische Bank on 23 November 2012 and held them until their maturity in 2017.

"As already stated, there is no legal restriction that would forbid a member of the HNB Council to own bonds of legal persons to which the HNB issues operating licences or whose operations it oversees," the HNB said, adding that Švaljek did not violate any legal regulations.

Friday, 17 December 2021

Croatia Becomes Member of Asian Infrastructure Investment Bank

ZAGREB, 17 Dec 2021 - Croatia on Friday became a full non-regional member of the Asian Infrastructure Investment Bank (AIIB), the Ministry of Finance said.

The AIIB is an international development bank headquartered in Beijing, established in 2015 to support sustainable economic development, create wealth and improve infrastructure connectivity in the Asia-Pacific region. The Bank has a high AAA/Aaa rating and a capital of $100 billion.

AIIB's operations are primarily focused on the Asian region, which accounts for 45% of the world economy and 60% of the world population.

According to its Corporate Strategy for 2021-2030, AIIB's mission is defined as "Financing Infrastructure for Tomorrow", and the Bank's investments have to be aligned with at least one of the four thematic priorities: green infrastructure, connectivity and regional cooperation, technology-enabled infrastructure and private capital mobilisation.

However, the press release reads, the AIIB can finance projects in non-regional territory, primarily within the framework of investments aimed at supporting trade and connecting with the region, including ports, transport links, production and transmission of electricity, as well as investments in global public goods, such as projects for the production of renewable energy (including storage or transmission).

To date, the AIIB has approved membership for 104 countries, including 19 member states of the European Union, which places the bank among the top international financial institutions, just behind the International Monetary Fund and the World Bank, of which Croatia is also a member, the press release said.

In October this year, Croatia passed an act accepting AIIB's Articles of Agreement, and as a signatory to the Agreement, Croatia subscribes to 50 shares of the original authorised capital stock, totalling $5 million, that is, 10 paid-in shares ($1 million), with payments to be made in five installments of $200,000, and 40 callable shares ($4 million), with payment subject to call.

According to an explanation of the act, Croatia's membership of the Bank would increase the visibility of Croatian companies in tenders within the framework of projects financed by the AIIB in the region and beyond, which would ultimately contribute to the development of Croatia's economy.

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Friday, 17 December 2021

Bankers Forecast Croatia's Growth at 9.5% in 2021 and 4.6% in 2022

ZAGREB, 17 Dec 2021 - The Croatian economy is expected to grow at a rate of 9.5% in 2021 and 4.6% in 2022, the Croatian Banking Association (HUB) said on Friday, citing projections by the four largest banks in Croatia.

HUB once again revised the Croatian GDP growth rate upward from July's estimate of 5.3%.

The national economy is expected to grow at a rate of 9.5% this year, with economists' projections ranging between 9.2% and 9.7%, HUB said in its latest outlook.

"That isn't surprising considering the developments and data released since July. Croatia is firmly positioned in the group of Central and Eastern European countries which are mostly surpassing the pre-pandemic level of economic activity," the report says.

Bankers' optimism isn't waning for 2022 either with the average expected growth rate forecast at 4.6%, with very little divergence in estimates - from 4.4% to 4.8%. 

Increased inflation to "eat up" a great deal of wage growth

The analysts expect that the accelerated economic growth will spill over to the labour market through lower unemployment rates and increased wages. They expect wages to increase by 3.7%, which is a faster rate than the 2.9% inflation rate estimated for next year.

The difference between the two rates is less than in previous years. "In other words, increased inflation will 'eat up' a great deal of the expected growth in nominal wages," HUB said.

The two main drivers of economic growth will be exports and investments. After a spectacular increase in exports this year, this trend is expected to continue at a high rate of 12% in 2022 while investments are expected to accelerate from 9.2% in 2021 to 11% in 2022.

NPOO to stimulate investment

Given that the corporate sector is still fairly passive with regard to investment, the main stimulus to investment in the short term should come from state investments, depending on how quickly funds from the National Recovery and Resilience Plan (NPOO) are activated. 

Croatia to catch up with ECB monetary expansion

HUB said that the general government balance to GDP ratio is decreasing roughly in accordance with government projections by 4.5% in 2021 and by 2.9% in 2022, and that gross public debt should decrease from 87.3% in 2020 to 82.9% in 2021 and 79.7% in 2022.

With regard to Croatia's aspirations to join the euro area in 2023, the analysts believe that the European Central Bank's quantitative easing policy will continue long enough for Croatia to catch, in terms of the impact of euro area monetary policies on demand for Croatian government bonds.

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Wednesday, 2 September 2020

Banks Maintaining Credit Activity Despite Pandemic, Says Banking Association

ZAGREB, Sept 2, 2020 - In Croatia, banks have retained their credit activity at almost pre-crisis levels, and in late July lending was up 3.8% on the year while moratoriums on loans to legal entities or rescheduling totaled about HRK 29 billion and to citizens HRK 9.3 billion, the Croatian Banking Association said on Wednesday.

"Data on credit activities at the end of July indicate that the outbreak of the pandemic and recession in Croatia has not resulted in a decrease in lending. The total placements of banks amounted to HRK 234.3 billion at the end of July, which is 3.8% more than in July 2019," the Croatian Banking Association (HUB) said in an overview released on Wednesday.

According to the publication, the total amount of loans issued to households at the end of July was about HRK 135 billion, which is 4.1% more on the year and 0.5% more than prior to the outbreak of the Covid-19 crisis at the end of February.

The increase in some types of lending has accelerated, for example, housing loans recorded an increase of as much as 8.8% y-o-y.

"The data indicate that this year due to market activity a significant increase occurred in the share of housing loans in overall loans (from 43.1% to 44.3%), with the share of loans in the kuna currency increasing from 30.5% to 31.3%," HIB says.

HUB notes that at the end of July housing loans amounted to HRK 59.8 billion, with HRK 18.7 billion being kuna loans and 41.1 billion housing loans pegged to a foreign currency. Most of those, in the amount of HRK 40.5 billion, was pegged to the euro.

Commercial loans to enterprises amounted to HRK 85.6 billion at the end of July or 5% more y-o-y and 2.2% more than prior to the outbreak of the pandemic.

HUB notes that new commercial loans issued in the period from March to July amounted to HRK 64.4 billion, which is an increase of 31.2% compared to gross new loans approved in the same period last year.

Citizens did not reach more for short-term loans (overdrafts, credit cards, etc.) and the gross flows of newly approved loans in that period decreased mildly by about one percent.

Enterprises and citizens applied for loan moratoriums, rescheduling

Citing information from the Croatian National Bank (HNB), HUB notes that at the end of July legal entities had applied for a moratorium or rescheduling of loans valued at HRK 29 billion and that HRK 24.8 billion or 85.6% of the total amount applied for was approved based on special (government) measures. This accounted for 29% of the total credit portfolio for non-financial companies.

Citizens applied for moratoriums on loans valued at just under HRK 9.3 billion, with HRK 7.7 billion, or 82.8% of the total amount applied for and 5.7% of the total credit exposure, being approved under government measures, HUB said.

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Sunday, 19 May 2019

Croatia Edges Closer to Eurozone, Official Request Coming Soon?

Just how ready is Croatia to join the Eurozone? The topic is one that has many sides to it and a lot of opposition from both the public and from certain politicians and political parties, yet it seems the Croatian Government is steaming ahead with their plans for the country to enter into the Eurozone and abandon the kuna.

As Poslovni Dnevnik/Jadranka Dozan writes on the 19th of May, 2019, the Croatian Government has proposed urgent amendments to the ZOKI, which creates a normative framework for the accession process to the banking union, a step that implies officially applying for the country's entry into the ERM II Exchange Rate Mechanism.

However, the Republic of Croatia has not yet submitted the aforementioned type of official request for entry into the ERM II Exchange Rate Mechanism, which is considered to be one of the first steps towards official entry into the controversial Eurozone.

This news could see more steps actively taken to enter into the banking union and establish "close co-operation with the European Central Bank (ECB)", which is usually part and parcel of a request to enter the ERM II.

In addition to the fact that the process of close co-operation with the ECB was the subject of a panel discussion on the first day of the Croatian Money Market conference in Opatija in Kvarner, the Croatian Government issued a proposal for a supplement to the Credit Institutions Act on Wednesday for public consultation, which refers precisely to the creation of a normative framework for the assignment of certain tasks to the European Central Bank.

In practice, this means, in the first instance, Croatia's inclusion in a Single Supervisory Mechanism (SSM), and that means that in the furure, the ECB will be able to carry out comprehensive assessments of such credit institutions, while for example, Asset Quality Review has so far covered euro-denominated countries.

At the aforementioned Opatija conference, the introductory speech on the path to Croatia's entrance into the Eurozone was given by an envoy to the President of the Republic of Croatia, with the Croatian Minister of State Property, Goran Marić, also having a part to play. It was stated that the single currency is one of the important aspects of unification, ie, in Croatia's accession to the European Union, and that Croatia has an obligation to respond readily and properly to this process.

That means, as was stated, the need to carry out all of the necessary preparations - monetary, political and others, including those aimed at the wider public, with a view to understanding the changes and eliminating fear, propaganda and potential insecurity. The main focus of the presentation of the Governor of the Croatian National Bank (HNB/CNB) Boris Vujčić was the macroeconomic prospects and challenges, and this is usually a reference to structural reforms without which Croatia will lag behind in reaching the level of development of much older EU member states, especially in terms of Croatia's development in comparison to other, older member states of the Union.

Croatia's business climate in us is still not good enough, remotely. To improve the country's overall business environment, the governor emphasised that what is particularly important is the raising of the quality of Croatia's institutions which greatly affects the general level of investment into the country, and that this is a key to faster productivity growth.

Therefore, in the first quarter of 2019, the indicators are solid: strong growth in industrial production, personal consumption and construction, the continued growth of exports (as well as imports) and favourable labour market trends (but with the increasing and very concerning problem of a lacking labour force owing to Croatia's demographic crisis).

In the case of economic slowdown today, however, there is a significant fiscal space that, at least according to Boris Vujčić, should be used in the case of a recession occurring. Otherwise, the Croatian National Bank expects to further reduce surplus on current and capital account balances this year, as well as significant appreciation pressures on the Croatian kuna.

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Click here for the original article by Jadranka Dozan for Poslovni Dnevnik