Thursday, 27 April 2023

CNB Governor Vujcic: There Will be no Recession in Croatia

April 27, 2023 - The Governor of the Croatian National Bank (CNB), Boris Vujčić, stated in the parliament that there would be no recession in Croatia, pointing out that all indicators point to a slight recovery of the economy, while the data for the upcoming tourist season are also very good.

"There was a risk of recession in the autumn of last year, but I think we have come out of it. There will be no recession, and the growth rate will be lower than the 6.3 percent in 2022," said Vujčić in the parliament during the debate on the financial situation, the degree of achievement of price stability, and the implementation of monetary policy, writes Index.

This was his answer to Davor Bernardić (Social Democrats), who was interested in whether Croatia is rushing into recession. Stating that at the moment, the risk of recession has fallen below 30 percent, Vujčić also said that all indicators point to a slight recovery of the economy, while the data for the upcoming tourist season are also very good.

Vujčić: We expected an increase in real estate prices, but not this much

Anka Mrak Taritaš (Glas) was interested in the impact of the Law on subsidizing housing loans given by APN on the increase in real estate prices. Vujčić replied that anything subsidized leads to a rise in prices. Also, the increase in prices in the country was influenced by the increased share of foreigners buying real estate in Croatia.

"We expected an increase in prices, but we didn't expect this much. It was partly motivated by the entry into the eurozone," said the governor. He considers it encouraging signs for the real estate market that the number of transactions on that market fell and that the share of foreigners on the market fell last year compared to 2021. Also, he added that this is the last cycle of APN subsidized loans, and interest rates have risen to 3.5 percent.

"All the factors that contributed to the increase in real estate prices are now turning in the other direction," said Vujčić.

For more, make sure to check out our dedicated News section.

Friday, 3 February 2023

Croatian National Bank Purchased Two Tonnes of Gold in December 2022

February the 3rd, 2023 - The Croatian National Bank (CNB/HNB) purchased around two tonnes of gold back at the end of last year, and a World Gold Council analyst took to Twitter to explain more.

There have been huge monetary and political changes for the Republic of Croatia this year already, with the country being the first to ever join both Schengen and the Eurozone on the very same day. When it comes to money, or at least items of value, gold is something that the country has allegedly not really had on its radar for a great many years, until December 2022, that is.

As Poslovni Dnevnik writes, Krishan Gopaul, an analyst at the World Gold Council, tweeted that ''The Central Bank of Croatia bought almost 2t of #gold in December. Prior to that they were not reporting any gold holdings, and haven't since 2001. And this is another Eastern European central bank who had bought gold in 2022.''

While many will likely focus not on the topic of gold but on the fact that he referred to Croatia as Eastern Europe (let's not go there now), this is interesting because the country hadn't reported any gold holdings for such a long time now.

The gold was immediately forwarded by the Croatian National Bank to the European Central Bank because since January 1st, 2023, upon joining the Eurozone, the Croatian National Bank has also participated in the management of part of the ECB's international reserves, as do all other central banks of Eurozone member states.

To be clear, the statute of the European System of Central Banks and the European Central Bank stipulates that the national central banks of Eurozone member states must transfer part of their international (foreign exchange) reserves to the ECB when joining the Eurosystem. As such, the Croatian National Bank also had to transfer part of its assets as well, according to what was explained by the bank for tportal.

National central banks of the Eurozone pay money in relation to the existing balance of international reserves of the ECB, namely 85 percent of the amount in US dollars and 15 percent in gold.

The Croatian National Bank was supposed to transfer 639.9 million euros to the ECB, that is, 580.1 million in US dollars and 96 million euros worth of gold, which the central bank did not have at that time.

For more, make sure to check out our dedicated news section.

Sunday, 20 November 2022

Is It Time for The Croatian National Bank to React to Inflation?

November the 20th, 2022 - Is it time the Croatian National Bank (CNB) reacted to the ongoing inflationary pressures we're all continuing to face? What could happen as costs spiral over the coming months?

As Poslovni Dnevnik/Ana Blaskovic writes, October 2022's inflation of 13.2 percent at the annual level exceeded expectations and broke records yet again. Economists continue to struggle with predictions, people are increasingly angry because they can afford less and less, and the window for companies to elegantly pass on the impact of costs to customers is constantly narrowing.

That said, long-term inflation, which has remained rather stubbornly in double digits for the past six months, has begun to erode demand and slow down the flywheel. Cumulatively, inflation increased by 10.2% in a mere 10 months, and after a slight summer break, it has been increasing on a monthly basis for two months now. In October, prices increased (on average) by 1.3% compared to September.

Clothing and footwear took the lead by 6.9%, followed by the category that includes housing, water, electricity, gas and other fuels by 2.8%, while food and non-alcoholic beverages rose in price by 1 percent. October is the first month this year in which one category stuck out like a sore thumb with a drop in prices – the segment of recreation and culture (-0.8%).

Although the reduction in prices at least in one area may seem like a bit of good news at first glance, it is a concrete indication that the standard has been undermined to the extent that non-essential consumption has begun being firmly squeezed out.

"Despite the Croatian Government's measures to cap prices in certain product categories, inflation is evidently spilling over to other product groups and is beginning to exert pressure on the demand side as well. This is partly a consequence of the previous increase in costs (which is especially visible in the continued strong growth of producer prices), so with still solid demand, consumer prices in other categories are also rising," RBA analysts point out.

The governor of the Croatian National Bank, Boris Vujcic, recently said that the latest data shows that the spread of inflation started to decrease for the first time in October. He said that this is good news and that it may indicate that we're "closer to the peak of inflation".

The engine of annual inflation (so far) has been the acceleration of prices in categories that are driven by cost shocks, although other categories are also suffering. Looking from the perspective of the month of October alone, food has risen in price by almost a fifth in a year, restaurants and hotels need people to allocate 17.8% more, while the costs of housing, water, electricity, gas and other fuels are 16.1 percent higher. The category of furniture, home equipment and regular maintenance has seen an average price increase of 15.8 percent. Transportation is also 11.5 percent more expensive today.

"It is slowly becoming more and more clear that the European Central Bank is lagging behind the curve of expectations. Here in Croatian conditions, we also have the element of introducing the euro, which will release enormous liquidity with inflationary potential. Therefore, it would be good for the Croatian National Bank to resort to the macroprudential measures it has as an instrument at its disposal, such as limiting the dynamics of lending, setting stricter requirements for collaterals, and the like," explained Zeljko Lovrincevic from the Institute of Economics.

Most recently when it comes to inflation, Lovrincevic sees two phenomena. "It's important to read that inflation has accelerated significantly since we met the nominal criteria for the introduction of the euro, and it keeps on surprising us. In other words, today we wouldn't manage to meet the inflation condition even with exceptions (countries that are excluded from the calculation for certain reasons) for its introduction,'' he stated.

"The figures show that what we're seeing is very widespread inflation, spanning all categories. If initially it came from energy sources, now inflation is radically spreading to all other groups, with food and non-alcoholic beverages taking the lead. In short, today inflation is fed by demand, which enters the zone of responsibility of central banks,'' explained Lovrincevic.

The months-long debate about inflation raises the question of where it comes from and, consequently, who is responsible for it all. Central banks, including the Croatian National Bank are responsible for ensuring things like price stability, but the economic profession has emphasised the limited capacity of monetary policy when inflationary pressures come from the cost side, in this case the explosion of energy prices across Europe.

People and companies are most interested in what will happen with inflation in the coming months. Roughly, a third of inflation is made up of administratively determined energy and utility prices, that part will directly depend on the government's decisions. The freezing of certain products, which "polished" the inflation statistics, resulted in shortages, but also compensations in the prices of other products.

"The real standard indicates that the burden of rising prices has been transferred to labour. The state will protect itself through the growth of the tax base, and employers through the growth of production and trade margins," the analyst points out.

The latest polls reflect exactly these trends; consumer optimism lags significantly behind that of the corporate sector, indicating the transfer of costs to the end customer. For this reason, this year in the triangle 'labour-capital-state', which depicts the contribution of individual components to GDP, Croatia will have the largest deviation in the share of labour of 2.5 percentage points (44.5 percent instead of the previous 47 percent), whereby the difference to be divided by the state and employers, concluded Lovrincevic.

Over more recent months, RBA expects a continuation of double-digit inflation with a slight tendency to decrease, 10.6% at the level of the whole of 2022, i.e. above 6% in the next year. They warn of the likely continuation of increased energy prices due to the war in Ukraine, but also of the necessary delimitation of administrative prices, which would bring a new inflationary blow with it.

For more, make sure to check out our dedicated lifestyle section.

Sunday, 16 October 2022

CNB Governor Boris Vujcic: Croatia Still to Have a Very Good Year

October 16, 2022 - After two and a half years of exceptional challenges due to the pandemic, the world is facing new crises. The road ahead will probably be just as difficult, if not more, Fund Director Kristalina Georgieva said at the end of the annual meeting of the IMF and the World Bank. The IMF's strategic committee called on Russia to stop its invasion of Ukraine. The Governor of the Croatian National Bank, Boris Vujcic, commented on the forecast for the Croatian economy.

As HRT reports, the war worsened the economic crisis, slowed growth, and created inflation and energy and food insecurity. The fight against inflation and protecting the most vulnerable categories of citizens remains the main priority. This was the conclusion of financial experts.

CNB Governor Boris Vujcic commented on the forecasts for the global and Croatian economy for HTV in Washington.

"It is obvious that the economy, both globally and European, and now according to the latest high-frequency data, the Croatian economy has started to slow down. At the global level, this slowdown has been visible for some time in Europe as well; in Croatia, it is very recent, and we have practically started seeing it from September onwards. Croatia will still have a very good year. We expect growth from 5.5 percent to 5.8 percent, which is very good after 10.2 percent last year. However, next year we expect that this slowdown that we are seeing now will be fully reflected in a much lower growth rate where the economy could grow by only one percent", he said.

IMF estimates

IMF estimates are that the economy of the Eurozone could only grow by half a percent and that some countries, primarily our main foreign trade partners such as Germany and Italy, would be in recession, which would mean having negative growth rates. As for Croatia, the primary projection is that we will have a low growth rate and not a recession. However, when the practical prospects are continuously deteriorating in this situation, he said it would not be surprising if we also entered at least a technical recession, meaning two consecutive quarters of negative growth.

"Of course, inflation is the biggest problem everywhere; central banks have to tighten their monetary policies, which means raising interest rates, but also to reduce their balance sheets, which have grown a lot since the great financial crisis and represent another, I usually call it fertile ground for the growth of the inflation. Central banks will continue to do so. As of next year, we will be a member of the eurozone, so this is primarily a concern of the European Central Bank, where I will co-create that policy. And as for the governments, this winter, they are mainly limiting the prices of electricity, thermal energy, and natural gas. Next year, we will see how things will develop, he said.

Entry into the eurozone

"Everyone congratulates us; they think it is very good for Croatia and will help Croatia significantly in this crisis. And we can already see that. We see that Croatia is doing better in this crisis than other EU countries that are not on the way to become members of the eurozone or existing members. Our rating is growing; we don't have to spend reserves on intervention in the foreign exchange market, which we had to do in the spring of 2020." He concluded that our interest rates are significantly lower.

For more, make sure to check out our dedicated Politics section.

Saturday, 25 June 2022

For Many Croatian Exchange Offices, This Summer Will be the Last

June the 25th, 2022 - For many Croatian exchange offices, this summer season will be their last. Croatia's Eurozone entry is set to take place at the very beginning of next year, and for a number of offices, the doors are being well and truly locked.

As Jadranka Dozan/Poslovni Dnevnik writes, the beginning of summer and the height of the tourist season is also the usual time of the "main harvest" for Croatian exchange offices, with the biggest turnovers in that niche market occuring during the months of July and August.

Last year, almost a third of the total annual turnover of authorised Croatian exchange offices was realised solely during those two summer months, and from the beginning of June to the end of September, 50 percent of the year-round turnover took place.

For many Croatian exchange offices, especially those for which these jobs aren't just a "side" activity, this summer, given the introduction of the euro at the beginning of next year, could be the last in which they remain in business.

According to the annual report of the Croatian National Bank (CNB) published this week, about 850 authorised Croatian exchange offices were active across the country at the end of last year, with a slightly higher number of them holding CNB licenses, a total of 1,146 of them.

Those who provided foreign currency trade services throughout the year or seasonally did so through approximately 3,500 Croatian exchange offices, where they traded a total of 31 currencies. However, out of 25.1 billion kuna in annual turnover (of which 18 billion kuna refers to purchases), more than 87 percent or 21.7 billion kuna was realised in euros (15 billion kuna through purchases, and the rest through the sale of euros). The majority of the remaining turnover refers to the US dollar (5.6%) and the Swiss franc (4.7% of the turnover).

Compared to pandemic-dominated 2020, last year's turnover within Croatian exchange offices increased primarily due to the recovery of the travel and tourism industry, by about 30 percent or almost six billion kuna. The first four months of this year also brought year-round traffic growth to offices.

According to the CNB, by the end of April, exchange offices across the country had generated a massive 6.73 billion kuna, compared to less than 5 billion kuna in the same period last year.

Authorised Croatian exchange offices achieved a record turnover back in 2017 (30.2 billion kuna), although in the meantime the inflows of tourist foreign currency grew. For example, in the record year of 2019, exchange offices made less than 30 billion kuna worth of foreign cash exchanges.

To a large extent, the explanation lies in the growing trend of non-cash payment transactions. By accepting foreign payment cards (cards issued outside of the borders of this country), transactions worth 20.8 billion kuna were realised last year.

Compared to the first year of the pandemic, 2020, it's equal to twice as much, compared to pre-pandemic 2019, not even four percent less, and compared to the exchange record in 2017, the value of transactions with foreign payment cards performed in Croatia last year was about 4.5 billion kuna higher.

There is no doubt that with the introduction of the euro in 2023, the number of CNB licenses for these jobs will fall even further. Most of the approximately (seasonally or year-round) 850 active Croatian exchange offices also perform other activities and currency exchange operations aren't their main activity.

The CNB estimates that they are the core business for approximately 200 legal entities, which in turn provide these services at approximately 400 exchange offices. It is also estimated that they employ between 600 and 800 employees.

For more, make sure to check out our dedicated business section.

Friday, 13 May 2022

Croatian Loan Interest Payments to Increase According to CNB

May the 13th, 2022 - Croatian loan interest repayments are set to grow, and the Croatian National Bank (CNB) has worked to highlight some of the main risks.

As Poslovni Dnevnik/Tina Lakic writes, the Croatian National Bank has stated that statistical indicators show that current economic growth strengthened earlier this year. But at the same time there was a visible weakening of consumer confidence, which remained relatively low in April, despite a slight recovery. As such, employment growth stopped in March, although nominal wages are growing more rapidly.

They also referred to the ongoing price hikes when it comes to both food and energy prices.

"Rising prices for oil, food and raw materials on global markets, partly affected by the war in Ukraine, are spilling over into Croatian prices of petroleum products and food, so inflation accelerated significantly during March. Due to the expected change in the monetary policy direction of the central banks of the largest economic areas, the increase in short-term and long-term government financing costs continued, and interest rates on corporate loans also rose slightly. In such conditions, the growth of placements to non-financial corporations accelerated sharply, while placements to households continued to increase at stable rates, reflecting mainly strong housing loans.

Increased systemic risks

The overall exposure of the Croatian financial system to systemic risks has increased due to the war in Ukraine and sanctions placed against Russia, and when it comes to the Croatian economy in particular, these effects are largely seen in movements in raw material and other commodity prices on both global and regional markets. Pandemic-related uncertainties, as well as recent geopolitical tensions, have so far not threatened the stability of Croatia's financial sector. An important role was played by the overall good liquidity and capitalisation of the banking sector, which is also supported by the protective layers of capital built so far,'' they stated from the CNB's Council.

Challenges and risks for the Croatian financial system in the coming period are related to the development of geopolitical instabilities and inflationary pressures, as well as the effects of the expected normalisation of monetary policy and the continued rise in housing prices. The duration of the ongoing war in Ukraine and the intensity of its consequences will determine the strength of the impact on macroeconomic, fiscal and financial developments. Disruptions in supply chains, which further encourage price increases, can place a major burden on both businesses and households.

Tightening monetary policy and rising Croatian loan interest rates

"In the context of rising inflation, monetary policies are expected to tighten with the raising of key interest rates of central banks in the largest economic areas. This will gradually increase the cost of new borrowing as well as the debt repayment burden for existing debtors with variable interest rates. The possible adverse effects of Croatian loan interest rates and their increasing on the financial system are being mitigated by the tendency to reduce total household and corporate indebtedness with a relatively low level of household debt and a small number of loans with which repayments could increase significantly. In addition to that, the expected introduction of the euro in 2023 could further mitigate the growth of the price of new borrowing for the state, as well as for other sectors.

Tightening up financing conditions in international financial markets, and then raising Croatian loan interest rates, could mitigate some of the risks to financial stability that have intensified over a long period of low interest rates, such as strong private sector borrowing, low bank profitability and the search for risky alternatives which still do offer higher rates of return. Such is the risk associated with the strong rise in residential property prices, which is supported, among other things, by a large volume of housing loans,'' they said from the CNB.

The property market is under a magnifying glass

The CNB continuously monitors and analyses the development of systemic vulnerabilities in order to be able to act on them if necessary with measures within its competence.

Thus, at the beginning of 2022, it was announced that they'd raise the countercyclical buffer rate, which will further strengthen the resilience of credit institutions to possible losses associated with exposure to cyclical systemic risks in the downward phase of the financial cycle or in the event of a sudden crisis. The CNB continues to closely monitor lending conditions at the level of individual debtors, so that potential sources of systemic risks can be diagnosed in a timely manner and measures can be taken to mitigate them, including prescribing stricter consumer lending conditions.

For more, make sure to check out our lifestyle section.

Friday, 29 April 2022

Croatian National Bank: Corporate Loans Pick Up in March

ZAGREB, 29 April (2022) - Total lending by monetary institutions to domestic sectors, except the central government, increased by HRK 4 billion in March, with the annual growth rate accelerating from 4% to 5%, the Croatian National Bank (HNB) said on Friday.

This was the result of the increase in loans. Corporate loans increased by HRK 3.7 billion or 6.7% and household loans by HRK 900 million, while loans to other domestic sectors decreased by HRK 400 million.

In the structure of household loans, housing loans and general-purpose cash loans continued to increase, both by HRK 300 million.

The annual growth rates of both housing and general-purpose loans remained at previous month’s level, at 8.0% and 3.4% respectively, so household loans accelerated only slightly, from 4.4% in February to 4.5% in March. On the other hand, corporate loans accelerated considerably, from 2.4% in February to 6.7% in March.

For more, check out our business section.

Wednesday, 27 April 2022

Could Tomislav Coric Become Most Powerful Name in Banking Sector?

April the 27th, 2022 - Could Economy Minister Tomislav Coric become the most powerful name in the domestic banking sector?

As Poslovni Dnevnik/Ana Blaskovic writes, while Prime Minister Andrej Plenkovic is busy calculating with the government reshuffle, which has (once again) been eroded by varying scandals, there is speculation on the sidelines that Economy and Sustainable Development Minister Tomislav Coric could continue his career as the vice governor at the Croatian National Bank (CNB).

Since the return of Martina Drvar to the European Central Bank, the position of Vice Governor for Supervision has been open since the middle of last year. It's a proverbial "hot seat" in which a key person sits in order to supervise the legal operations of banks. In her hands lies the power to prescribe millions in fines to the most powerful players on the Croatian market, which is why, both directly and indirectly, she is often open to the barrage of pressures from the banking sector, especially when their profits are touched.

Damir Odak doesn't have adequate support

Although it has been mentioned that Damir Odak could return to the post, he allegedly lacks the support of those in power who resent him for being close to Governor Boris Vujcic. Unofficially, it can be heard in the parliamentary corridors that the seat is "reserved for Tomislav Coric" and that (for now) there are no other candidates being looked at. It's unclear at this moment in time whether it is possible to have a kind of rotation of vice-governor positions and in that case, Tomislav Coric might take over another department, and one of the current vice-governors would take over that role in supervision.

"At the moment, only Tomislav Coric is being mentioned, but there will probably be no official proposal before the prime minister announces the details of the reconstruction," it has been said among circles close to the parliamentary Committee on Finance and the Budget.

Regarding his possible departure to the CNB, Tomislav Coric briefly said that he is "without comment on all non-departmental topics". Therefore, Coric, a doctor of science and former assistant professor at the Department of Finance at the Faculty of Economics in Zagreb, doesn't seem as if he's rejecting this option.

Dissatisfaction within the CNB

The CNB is allegedly resisting all notions of Tomislav Coric, believing that this is a key function that requires exceptional knowledge of the banking system and the way in which it functions.

There has as yet been no official comment from the CNB on the alleged idea. Governor Boris Vujcic is a member of a Croatian delegation led by Finance Minister Zdravko Maric, who travelled to the International Monetary Fund's annual assembly in Washington last week. Unofficially, however, the choice didn't really please them much, especially since the return of Odak was expected.

"Within the CNB, the entrance of Tomislav Coric is being resisted. This is a key function that requires exceptional technical knowledge of the banking system, as well as of many domestic and European Union regulations. This is one of the most responsible technical positions in the entire country. It's problematic to recruit from the political sphere to an extremely demanding professional position,'' claimed a well-informed source.

The collapse of integrity

On the condition of anonymity, those who spoke about the matter commented that regardless of Tomislav Coric's indisputable educational qualifications, his appointment would be a firm step in undermining the integrity of an institution that should be totally independent of politics.

The last two rounds of appointments at the very top of the CNB's structure were politically coloured, with the key exception that Martina Drvar, as the undisputed expert, was the governor's choice back in 2018. To briefly recall, before the amendments to the law on the central bank, the governor chose his own closest associates.

"We're practically facing a situation in which the CNB Council is the majority politicised body, and that's the defeat of the independence of yet another of this country's institutions. In that sense, it's probably good that we do go ahead and introduce the euro (join the Eurozone) and that the ECB takes control of systemically important Croatian banks,'' concluded one of the aforementioned well-informed sources.

For more, make sure to check out our dedicated politics section.

Friday, 4 March 2022

Foreign Exchange Intervention: Croatian National Bank Sells €171 Million

March the 4th, 2022 - The Croatian National Bank (CNB/HNB) has sold a massive 171 million euros to various banks in a recent exchange rate intervention, the first which has taken place since back in June last year.

As Jadranka Dozan/Poslovni Dnevnik writes, on the 2nd of March, the Croatian National Bank intervened in regard to the exchange rate by selling off foreign exchange to banks in order to preserve the stability of the exchange rate, while 171 million euros were sold to banks at an average exchange rate of 7.562505, the central bank announced.

As a result of this foreign exchange intervention, which has obviously been primarily driven by increased demand for foreign exchange, about 1.3 billion kuna is being withdrawn from the system.

After the opening of that day's trading, the market exchange rate of the euro/kuna stood at 7.58, which is slightly higher than it had been. In the daily reviews of leading banks on the Croatian foreign exchange market, it could be read that on Tuesday this week, there was a slightly higher demand for euros by corporate clients for foreign currency payments, but in the past few days, a slightly higher demand was attributed primarily to the retail sector.

As briefly touched on, the Croatian National Bank last intervened in the foreign exchange market back in mid-June of last year, but then it was by buying foreign exchange from banks as a result of increasing appreciation pressures, while the last time it intervened by specifically selling off euros was in the first half of April 2021.

For more, make sure to check out our dedicated business section.

Saturday, 22 January 2022

Boris Vujcic Reveals All Locations for Kuna-Euro Cash Exhange

January the 22nd, 2022 - Boris Vujcic has revealed all of the locations at which the Croatian kuna can be exchanged for the euro as the country edges closer to Eurozone entry.

As Poslovni Dnevnik writes, Prime Minister Andrej Plenkovic and CNB Governor Boris Vujcic addressed the public at a recent session of the Council for the Introduction of the Euro as the Official Currency, held at the National and University Library.

Plenkovic: There are many advantages for citizens

"Why is the introduction of the euro good? There are benefits for our citizens. Currency risks will disappear. The euro will bring with it a great impetus to the international exchange of goods and services,'' explained Plenkovic.

“Euro deposits account for more than 76 percent of total time and savings deposits with banks, and 50.3 percent of total bank placements are euro placements. We intend to highlight several fundamental principles of this process which are included in the bill. The first and most important thing is consumer protection, we must prevent any situations that would take advantage of the introduction of the euro to the detriment of consumers,'' added the Prime Minister.

"The intention is that in the beginning the prices will be expressed twice, both in kuna and in euros. Throughout the whole of 2023, after the introduction of the euro, prices will also remain highlighted in kuna. So, first we'll pay in kuna and see the prices in euros, and then we'll pay in euros, but we will also have the prices visible in kuna,'' he said.

After Plenkovic, CNB Governor Boris Vujcic spoke, HRT writes:

"The most important thing in the law is that it contains the principle according to which the existing contracts stating the reference to the kuna are still valid. We're removing any possibility of legal uncertainty during Croatia's changeover to the euro,'' he said.

"When it comes to the process of exchanging the kuna for the euro, consumer protection is important. Converting kuna into euros will be done by and in banks automatically and without any incurred costs,'' assured Boris Vujcic.

"As for deposits and loans, people don't need to worry, the conversion into euros will be done automatically on the day of the introduction of the euro in Croatia at a fixed conversion rate and without any cost. Agreements on all loans and deposits will continue to be valid,'' he added.

"As for interest rates, the rule is that fixed interest rates will remain fixed, and when it comes variable interest rates, if the variable parameter needs to be adjusted when introducing the euro due to rounding, this law stipulates how this adjustment will be made," Boris Vujcic said.

"The consumer must not be put in a worse position than they were in before"

"Again, the important principle is that the consumer cannot be in a worse position than they were in before. If there are any differences in the second decimal, it will be at the expense of the bank, not at the expense of people. When exchanging kuna cash, about 36 billion kuna is in circulation at the moment, it would be good to deposit as much of that money in banks as possible this year in order to logistically facilitate the conversion itself,'' noted the governor.

"Those who fail to do so will have a chance after that, for one year at Fina, in banks and at Croatian Post (Hrvatska posta) offices, and banknotes will be able to be exchanged forever at the CNB, and the same will be made possible for kuna coins for the next three years," concluded Boris Vujcic.

For more, check out our dedicated lifestyle and politics sections.

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