May the 6th, 2022 - Croatian euro printing is set to begin on an enormous scale come this July, as Croatia makes the very last preparations to send the kuna to the history books and finally join the Eurozone next year.

As Poslovni Dnevnik/Jadranka Dozan writes, the National Council for the Introduction of the Euro has once again confirmed that all of the current preparatory steps are in line with the plan to switch to the bloc's single currency on the first day of 2023. Recently, the Croatian National Bank (CNB) finally presented the design of the national side of the one euro coin, which was selected in a repeated tender.

The CNB has already begun preparations for large-scale Croatian euro printing, and according to Governor Boris Vujcic, mass production should start during the month of July. Before that, one million kuna's worth of test coins will be made by the middle of next month, the central bank says.

By this summer, the ongoing tender for the services of creating and implementing an informative national campaign to replace the kuna with the euro will be concluded. The estimated value of this public procurement stands at a massive 27 million kuna, and half of the campaign costs are being borne by the European Commission (EC).

Currently, no obstacles are being noticed

All in all, in recapitulating the course of preparatory activities from the 15th session of the Council, it was said that everything is going according to the planned deadlines. The Prime Minister recalled that the Croatian Government adopted a report on the action plan back in late March, which confirmed that all reform commitments made upon entering the European Exchange Rate Mechanism ERM II (in July 2020) had now been met by Croatia.

Croatian euro printing aside, the competent ministers responsible for individual areas of measures from the action plan briefly reported on the activities carried out in the area of ​​improving the business environment, managing state-owned enterprises, strengthening the bankruptcy framework and the framework for preventing money laundering.

The new Minister of Economy Davor Filipovic emphasised the administrative relief that will be felt by the domestic economy with an estimated effect of 686 million kuna, as well as 531 million kuna of reduced non-tax and parafiscal benefits. From the judicial department, they primarily emphasised the changes in the bankruptcy law and the improved framework for the work of bankruptcy trustees.

Increased inflation rates, which according to recently updated government projections rose to a concerning 7.8 percent of the annual average this year, do not pose a problem or obstacle in the context of the convergence criteria for the euro, both the government and the CNB are strongly convinced.

Regarding the inflation criterion (up to 1.5 percentage points above the average of the three best performing countries), Governor Boris Vujcic explained that, for a start, this criterion doesn't refer explicitly to the (three) lowest inflation rates but instead to the best performance.

Imported price pressures

The governor reiterated that the greatest advantage of the euro is shown during financial and other such crises, such as the recent global coronavirus pandemic or the current crisis being caused by the economic consequences of the war in Europe, more precisely in Ukraine.

This, he said, is especially true for small and open economies such as that of Croatia, and the country's lag over the past decade is the result of a stronger decline in the crisis and a longer recovery period, partly due to Croatia's then inability to rely on the ECB's monetary policy. Although inflationary pressures will obviously last longer than expected before the escalation of the war in Ukraine, and imported inflationary pressures may spill over into Croatian prices, the governor underlined that this should not be linked to the introduction of the euro.

People are often afraid of prices being rounded up upon a country's entry to the Eurozone, but now these effects don't really seem crucial. In the seven countries that last entered the Eurozone, prices which were a mere 0.2 to 0.4 percentage points higher were recorded.

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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.

April the 20th, 2022 - Might Croatian inflation reach six percent this year? Croatian Government statisticians are continuing to record relentless and very concerning accelerations in terms of price growth: Croatian inflation, as measured by the consumer price index, rose to 7.3 percent year on year in March.

As Poslovni Dnevnik writes, the aforementioned figures in terms of Croatian inflation repesent the highest levels since the summer of 2008, and in just one month, prices rose by an average of 2.1 percent. The energy war between Vladimir Putin and Europe, in addition to the horrendous Russian invasion of neighbouring Ukraine, is increasingly extinguishing hopes that this ongoing jump in prices could be temporary. It isn't surprising that the corrections of inflation forecasts for this year are coming.

Raiffeisen analysts announced last week that their forecast for 5.9 percent in terms of Croatian inflation this year was "exposed to rising risks" and "put under review."

"With the previously present inflationary pressures generated by rising energy and food prices, in the current environment of geopolitical conflicts and extreme uncertainty about their duration and outcome, inflationary pressures are now growing stronger," they said.

The Croatian National Bank (CNB), the central address for all things related to Croatian inflation, predicts that price growth this year could average 5.4 percent, twice as much as last year's 2.6 percent.

In that, they pinpoint the causes of rising prices on three fronts; through the "import" of higher prices of raw materials and industrial products on the global market, among which energy is at the very top of the list, and the recovery of Croatian consumption, which encouraged producers and traders to pass on higher costs to their customers.

Finally, and not entirely negligible, is the factor of statistics, meaning the fact that current prices are being compared to last year's when they were under pressure due to the global coronavirus pandemic, which was an entirely different kettle of fish.

What will happen in the coming months and what will happen to prices across the country as this dire situation unfolds can be predicted only by Mystic Meg. Due to the war in Ukraine, the CNB corrected its estimates of economic growth (which showed acceleration in the first quarter). In the baseline scenario, assuming a relatively short war in Ukraine and a gradual normalisation of energy and raw material prices on the global market, the CNB expects Croatia's GDP growth to slow to 3.2 percent, from 4.1 percent back in December.

A number of factors are involved 

The latest Eurostat figures (which are still preliminary) estimate that inflation across the Eurozone should have reached 7.5 percent in March, after 5.9 percent back in February. That said, it should also be noted that this is only an average because for many countries, that the figure looks good, like Lithuania and Estonia with an estimated 15.6 percent and 14.8 percent, respectively.

EU member states outside of the Eurozone, ie those that still have their own currencies, generally experienced higher inflation back in February than those within the Eurozone and using the single currency: the Czech Republic 10%, Hungary and Bulgaria 8.4%, Poland 8.1%, Romania 7.9% and Croatia 6.3%. The only exceptions are the old member states Denmark and Sweden with 5.3 and 4.4%, respectively.

CNB Governor Boris Vujcic recently said that (along with the recovery, supply-side constraints and rising energy and food prices), Croatian inflation could be further pushed by "a number of structural factors, such as deglobalisation processes, adverse demographic trends and the ongoing green transition.

However, he added that "although there's a strong rise in inflation expectations among both companies and individuals, the financial markets are still maintaining their expectations that inflation in the Eurozone could stabilise close to the inflation target in the coming years, which supports the gradual normalisation of monetary policy."

For more, check out our lifestyle section.

April the 13th, 2022 - Croatian banks are placing stricter and stricter conditions on those they provide loans to as rising interest rates are anticipated by the financial system.

As Marina Klepo/Jutarnji/Novac writes, in anticipation of rising interest rates, customers of Croatian banks are already noticing heightened caution, and loan offers are somewhat less "generous", especially when it comes to cash loans. As such, some clients have been noticing quite an unusual trend - larger Croatian banks refer them to smaller ones, which have less rigorous procedures, and often lower interest rates.

The Croatian National Bank's comparative list of credit terms shows that "cash" can now be obtained in sixteen different banks, but only half of them, the smaller and medium-sized ones, actually offer fixed and variable interest rates. Today, all large Croatian banks are approving these loans exclusively at a fixed interest rate.

In an effort to protect themselves from increased repayment installments, many people over more recent years have decided to take out loans with fixed interest rates, not only for long-term housing loans, but also for non-purpose cash loans, which are now mostly being approved for a period of ten years. Over the past year and a half, judging by the Croatian National Bank's comparative list, it's fairly clear that large banks have eliminated variable interest rates that were more favourable. The reason for this could be the effort to keep the existing, very high interest rates, as they are.

In the case of kuna cash loans, the fixed interest rate effectively (with all costs) ranges from 5.5 percent, as offered by two small Croatian banks, Imex and Karlovacka banka, to as much as 7.32 percent in Zagrebacka banka and 7.49 percent in Samoborska banka. Since October last year, Croatian banks have slightly revised their fixed interest rates, some are higher, some are lower. For Zagrebacka banka, for example, their interest rate was raised from 7.16 to 7.32 percent, for RBA it was lowered from 7.42 to 6.9 percent, while a number of banks kept about the same figures.

The real boom in approving these loans occurred back in 2018 and 2019, when they increased by about 5.5 billion kuna per year. Today, the total amount of these loans, according to the Croatian National Bank for the month of February 2022, reached 53.4 billion kuna, while the amount of housing loans amounted to 68.3 billion kuna.

Who are the clients of Croatian banks who are taking out cash loans? A recent Croatian National Bank survey "Which loans do we take? A microanalysis of Croatian household debt" shows that more expensive loans are more often used by households whose income isn't sufficient to finance their current consumption. It's very likely, the study concludes, that some households use “unsecured loans” to consolidate overdrafts or credit card debts, and for most households these efforts have proved unsuccessful. In the end, they end up with even more indebtedness.

In some cases, people took out cash loans and to, at least in part, finance the purchase of properties. Since the beginning of the coronavirus pandemic, interest in cash loans has fallen sharply and banks have approved many more housing loans. According to the latest Croatian National Bank data for that same month of February, housing loans were eight percent higher than they were back in the same month last year, slightly slower than they were in January, when the growth rate was 8.4 percent, and non-purpose cash loans accelerated slightly, from 3.3 to 3.4 percent.

When it comes to housing loans, Croatian banks still offer all kinds of interest rates, and they generally range from three to four percent. Those who need a smaller amount, up to 500,000 kuna, can currently get the best loan from the Istrian Credit Bank.

For more, check out our lifestyle section.

ZAGREB, 24 March 2022 - Banks have started with preparations or have already introduced technical solutions to secure access to the basic payments account for refugees from Ukraine, the Croatian Banking Association (HUB) has said, noting that according to available information, the number of such requests is not big.

The Croatian National Bank (HNB) on Monday informed banks based in Croatia that it expected them to provide free access to a basic payments account, including ten free-of-charge national and international transactions in kuna and euros, for refugees from Ukraine legally staying in Croatia.

The HNB said that one of the most severe consequences of the Russian invasion of Ukraine was the resettlement of a large number of civilians. In those conditions, access to basic financial services is a necessary precondition for the normalisation of life for refugees and their integration, the central bank said.

In response to a query from Hina, HUB said that it did not have detailed statistics at present but that according to available information, the number of requests for a basic payments account was not significant.

"As before, banks have started preparations or have already implemented technical solutions to enable access to the basic payments account for Ukrainian refugees," HUB said, noting that the basic payments account enables refugees to use a kuna current account and a related debit card. They can also make payments and withdraw money at bank offices or on ATMs and use internet or mobile banking.

In addition to the minimum ten free national or international transactions in kuna and euros, some banks will offer the refugees additional facilities.

So far, 9,500 Ukrainian refugees have arrived in Croatia.

Business: For more, check out our business section.

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.

ZAGREB, 2 March 2022 - The Croatian National Bank (HNB) on Wednesday intervened in the foreign exchange market to preserve the kuna exchange rate, selling €171 million to commercial banks at an average exchange rate of HRK 7.562505 for one euro, the HNB said in a brief statement.

This was the central bank's first foreign exchange intervention since 16 June 2021.

The kuna strengthened against the euro by a marginal 0.0001 per cent from Tuesday.

Today's middle exchange rate, effective from Thursday, is 7.560528 kuna for one euro.

The Croatian financial system is currently enjoying record liquidity of about HRK 80 billion.

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

February the 22nd, 2022 - As Croatia's accession to the Eurozone approaches, special motif kuna in gold and silver will be issued by the Croatian National Bank (CNB/HNB) showcasing the Dalmatian, a much loved dog breed which originates from Croatia's gorgeous Dalmatian coast.

It won't be long before the Croatian national currency, the kuna, is rendered invalid and sent to the history books as the country enters the Eurozone, a move it had to promise to make in order to gain EU accession. The only countries which didn't have the make that promise and enjoyed opt-outs were Denmark and the United Kingdom. 

As Poslovni Dnevnik writes, the author of the conceptual and artistic design of these special motif kuna gold and silver coins is Nikola Vudrag, and the coin which celebrates the clownish and much loved Dalmatian dog breed was made in the Croatian Mint.

The Croatian National Bank will issue a gold special motif 1000 kuna coin in a quantity of not more than 101 pieces, another gold special motif 250 kuna coin in a quantity of not more than 2,000 pieces and a silver 20 kuna coin in a quantity of not more than 500 pieces. Back in November 2021, the CNB issued two gold coins and a silver coin with the same special motif.

The sale of these gold and silver coins will be performed by the Croatian Mint, and the initial selling price is expected to be around 16,000.00 kuna without VAT for the first 1000 kuna coin, and about 3,800.00 kuna without VAT for a gold 250 kuna coin.

The initial selling price for the silver 20 kuna coin will be around 1,592.00 kuna without VAT. The final selling price of gold and silver special motif kuna coins will depend on the movement of gold and silver prices on the open market as time goes on.

Those interested can purchase these commemorative coins as of now, and more about ordering and purchasing them can be found on this website.

For more, check out Made in Croatia.

ZAGREB, 19 Feb 2022 - A total of 807 banknotes of all currencies were withdrawn from circulation in Croatia in 2021, which is 77.8% more than in 2020, and 198 of them were counterfeit kuna banknotes, which is an increase of 26.1%, the Croatian National Bank (HNB) said earlier this week.

Kuna banknote counterfeiting accounts for a quarter of fake banknotes

The kuna banknote counterfeits accounted for 24.5% of all counterfeit banknotes registered last year.

The most frequently counterfeited domestic currency denomination was the 200 kuna banknote, which accounted for 98 registered counterfeit kuna banknotes, or 49.5% of the total registered kuna banknote counterfeits.

Among the 807 counterfeit banknotes of all currencies withdrawn from circulation, counterfeit US dollar banknotes accounted for 42.9%, followed by counterfeit euro banknotes (28.3%), counterfeit Swiss franc banknotes (2.4%), and counterfeit pound sterling banknotes (1.7%).

Last year, 228 counterfeit euro banknotes were withdrawn from circulation, which is a decrease of 3.8% from 2020. 50 euro banknotes accounted for the largest number of counterfeit euro banknotes withdrawn from circulation, with a share of 38.6% in the total number of registered counterfeit euro banknotes.

8,075 counterfeit coins withdrawn from circulation in 2021

A total of 8,075 counterfeit coins were also withdrawn from circulation in 2021, including one counterfeit 5 kuna coin and 8,074 counterfeit euro coins. Compared to 2020, when 817 counterfeit euro coins were withdrawn from circulation, the number of counterfeit euro coins increased by 888.3%.

The increase in the number of counterfeit euro coins withdrawn from circulation was the result of the central bank's adjusting banknote and coin processing machines and training as part of the National Training Programme.

The HNB said that the counterfeits registered last year did not cause any significant financial damage, nor did their quantity and production quality cause any disturbances in cash operations in specialised institutions or among the general public.

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ZAGREB, 16 Feb 2022 - Financial stability risks remain increased compared to the period before the crisis due to uncertainties surrounding the end of the pandemic, rising inflation, residential real estate price hikes, and geopolitical risks, the Croatian National Bank (HNB) Council concluded on Wednesday.

The economy continued to grow in the last quarter of 2021, albeit at lesser intensity than previously in the year, with industrial production increasing, while the real retail turnover and construction stayed at Q3 levels, the HNB said in a press release.

In Q4 2021, employment continued to increase while the unemployment rate dropped, making their levels better than before the pandemic. Nominal pay growth also continued to accelerate, while inflation resulted in a decrease of the real pay average.

In December, the annual inflation rate increased to 5.5% from 4.8% in November. Higher food prices contributed the most to that. Together with energy prices, they are increasingly influencing inflation.

The continuation of expansionary monetary policy continues to stimulate the fall of banks' interest rates. Keeping interest rates on the money market at zero is accompanied by a mild increase in sovereign bond yields.

At the end of last year, bank lending increased 3.9% year on year, just as it did at the end of 2020. Household lending went up from 2.1% in December 2020 to 4.5% last December, primarily as a result of a strong increase in housing loans. Corporate lending decreased from 5.6% to 2.3%.

Although a strong economic recovery enabled a gradual revocation of government aid to businesses, new waves of the pandemic continue to cause problems in global supply chains, stimulating price growth.

Hence, there is a prominent risk of long-term inflationary pressures and higher inflation than currently forecast, which could prompt a faster and stronger tightening of the monetary policies of the largest monetary markets' central banks.

Increased volatility on financial markets at the start of this year is reflected in uncertainty about inflation trends, the evolution of monetary policies and expected interest rate growth.

Residential real estate prices increasingly further from fundamentals

Last year saw a strong increase in housing loans in Croatia as well as residential real estate prices, which went up to 9% in Q3. Those prices are moving further and further from long-term trends and macroeconomic fundamentals, increasing the risk of their fall in case of economic disruptions.

Increased household borrowing is accompanied by relatively mild borrowing standards which again this year, will be supported by government subsidies. These may, at the start of the repayment period, pose a smaller burden on borrowers but when the subsidies expire, they increase repayment costs as well as vulnerability to possible shocks.

In response to the continued accumulation of cyclical systemic risks, notably the rise in residential real estate prices and housing lending, the HNB has announced increasing the countercyclical capital buffer rate for Croatia from 0% to 0.5% as of 31 March 2023.

The aim is to set aside additional capital in time in order to boost the resilience of credit institutions to possible losses due to cyclical risks, the press release said.

For more, check out our business section.