Thursday, 11 November 2021

One in Four Pays Over Half of Monthly Income for Housing Loan

ZAGREB, 11 Nov, 2021 - The average monthly housing loan installment for people who took out the loan between November 2020 and June 2021 ranges from 41 to 44% of their monthly income, according to a Croatian National Bank survey, Večernji List daily said on Thursday.

Housing loans total HRK 67 billion, up by over 10% year on year.

The high demand for real estate is accompanied by a constant rise in prices, which are up by six to seven percent. At this rate, the price of a square metre of a flat could double in ten years' time.

"Croatia is a country with too many motives for the high demand for properties, from the tax treatment, tourism and low interest rates to the moving of the capital of the extra rich from banks, the APN (Croatian Real Estate Agency), the fact that some indeed need a place to live, that some buy properties in companies' names to pay less taxes, and the presence of foreigners," Maruška Vizek of the Zagreb Institute of Economics told the daily.

"The market can't offer enough properties for so many motives for there to be a drop in prices. The only solution is an adequate tax treatment, which won't happen," she added.

The central bank is worried about potential risks and that the crisis might spill over to the banking sector. Governor Boris Vujčić said recently the prices of housing properties were increasing more than incomes but not construction costs. All of that increases the risks of their corrections in future.

Most of the new housing loans (28% of the principal) are paid out with debt-to-income ratios of 30 to 40%. For another 26% of debtors, the ratio is 40 to 50%. For as much as 23% of the new housing loans, the monthly payment is more than half the debtor's income, Večernji List said.

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Monday, 8 November 2021

Gross International Reserves Reach €24.5 Bn, New Record Amount

ZAGREB, 8 Nov, 2021 - Croatia's gross international reserves reached €24.5 billion in October 2021, their new highest level to date, increasing by €100 million or 0.6% from September, according to the data provided by the Croatian National Bank (HNB).

Since the start of the year, gross international reserves have increased by €5.5 billion or 29.3%. Compared to October 2020, they are €6.34 billion higher.

The increase is mostly the result of the government's foreign currency deposits with the HNB following the disbursement by the European Commission of €818.4 million as an advance payment for the purposes of the National Recovery and Resilience Plan.

All adequacy indicators of the country's gross international reserves suggest that they are sufficient to ensure the smooth running of the central bank's monetary policy.

Net reserves remained almost the same as in September, at €19.5 billion, the HNB said.

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Sunday, 31 October 2021

World Savings Day: Growth of Savings in Croatia Continues in 2021

ZAGREB, 31 Oct, 2021 - Increased uncertainty about future economic trends is leading to an increase in savings, according to an analysis by the Croatian Chamber of Commerce (HGK) on the occasion of World Savings Day, marked on 31 October.

Data from the Croatian National Bank (HNB) show household deposits at the end of September 2021 were HRK 240.3 billion, up HRK 20 billion or 9.1% from September 2020 and up HRK 1.6 billion or 0.7% from August 2021.

Citing HNB data from August, they underscored that a year-on-year growth of deposits was recorded in all counties.

In terms of the distribution of household deposits by banks, the concentration of deposits is the highest in the City of Zagreb, whose citizens had HRK 67.2 billion in savings at the end of August, a share of 29% percent.

Broken down by counties, per capita deposits exceed HRK 50,000 in the Adriatic Croatia counties, with the exception of Lika-Senj County, while the City of Zagreb and Zagreb County are the only continental counties to register such per capita deposits.

Istria County tops the list with per capita deposits of HRK 85,249, followed by the City of Zagreb (HRK 83,049), while Vukovar-Srijem County (HRK 26,068) ranks last. At the level of Croatia, per capita deposits amount to HRK 57,555, up from last year's HRK 53,103, the HGK analysis showed.

The share of time deposits is 33.6%, down 4.7 percentage points compared to the end of last year, while the share of savings deposits has reached 35%, up 2.2 percentage points, and the share of deposit money has reached 31.4%, up 2.5 percentage points.

Huge oscillations in savings

Josip Zaher of the HGK said in a statement carried by the press release that the increase in savings of Croatian citizens was not surprising given that in every crisis, this time caused by the COVID-19 pandemic, people always saved more.

As long as uncertainty regarding future economic trends is heightened, the same will apply to savings, said Vedran Šošić of the HNB, underscoring that oscillations in saving were huge.

Thus, amid the outbreak of the pandemic and the consequent lack of goods, and especially services, as well as caution and fear due to a potential loss of income, savings doubled overnight.

The reopening of the economy and the recovery of confidence enabled a gradual return to pre-pandemic patterns of spending and savings, although savings are generally still slightly higher than usual, said Šošić.

He also said that the majority of money surpluses accumulated after the outbreak, citizens deposited in banks. Also, savings were directed to the repayment of consumer debt, and investment in residential real estate is always popular, so housing loans grew increasingly fast, with increasingly obvious signs of overvaluation.

Member of the Management Board of the pensions funds management company Raiffeisen, Eva Horvat, stressed that nearly 400,000 Croatian citizens were saving in one of the voluntary pension funds, which contained assets of HRK 7.3 billion.

Savings growth constant in Croatia

On the occasion of World Savings Day, Zagrebačka Banka (Zaba) also released an analysis, in which Hrvoje Dolenec said that savings growth was constant in Croatia, and the reasons for that were the growth of GDP, living standards and disposable income.

"In the past two and a half years, the movement of financial assets of the Croatian population indicates an acceleration of that growth. This was especially evident during the pandemic, when the acceleration of savings was partly forced, due to limited movement and travel and less available services, such as restaurants, cafes, recreational activities, and partly voluntary, out of precaution and concern for the future," said Dolenec, noting that deposits and cash together accounted for nearly half of the total financial assets of households.

Igor Pavlović of Zaba underscored that low interest rates were certainly among the most important reasons for the reduction in the habit of opting for time deposits.

(€1 = HRK 7.509157)

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Thursday, 28 October 2021

"Vienna" Initiative, HNB Hold Annual Conference on Financial Trends in Split

ZAGREB, 28 Oct 2021 - A two-day conference on economic trends in central, eastern, and southeastern Europe, the consequences of the corona crisis, climate change, and inflation, which was organized by the European Bank Coordination "Vienna" Initiative and the Croatian National Bank (HNB), started in Split on Thursday.

The European Bank Coordination “Vienna” Initiative is a framework for safeguarding the financial stability of emerging Europe. The Initiative was launched at the height of the first wave of the global financial crisis in January 2009.

Opening this annual conference, the HNB Governor and Chairman of the Vienna Initiative Steering Committee, Boris Vujčić, said that the availability of bank lending was currently much better than in 2019, before the start of the COVID-19 pandemic.

Of course, during the lockdown of economies there was no need for taking funds, as economic activity was suspended, but the price of the money today is more favorable, the governor said in his opening speech.

Asked whether he feared inflation, Vujčić said that he could now, perhaps, be more afraid of inflation than other citizens, however, inflation was not currently an important issue.

He elaborated that this year's 2.3% inflation rate should not be a rate that caused concern.

It will grow into a bigger problem if such a rate remains present for a long period, he explained.

The governor also admitted that a part of bankruptcy proceedings that had not happened during the pandemic could ensue later and that state grants for job-keeping measures helped to achieve employment even higher than before the corona crisis.

He said that Croatia would get an exact date for the euro changeover next summer.

HNB survey shows that 61% of Croats are for switching to the euro

As for a referendum initiative by a few right-wing parliamentary and non-parliamentary parties against the adoption of the euro in Croatia, Vujčić said that not one country that introduced the euro had experienced a decline in living standards.

He went on to say that opinion polls conducted by the central bank show that 61% of Croatians support the euro, 19% are against it, and the remaining respondents are also in favor of the euro on certain conditions. 

The HNB reports on its website that the participants in the Split conference include Vice-President of the European Bank for Reconstruction and Development, Mark Bowman, the European Investment Bank Vice-President, Lyiana Pavlova, World Bank Vice-President for Europe and Central Asia, Anna Bjerde, who will join virtually, as well as central bank Governors of Estonia, North Macedonia, Montenegro, Slovenia, and Ukraine.

Representatives of the International Monetary Fund, the European Central Bank, the European Commission, and the European Investment Fund will also be participating in the conference together with commercial banks and other financial sector stakeholders.

As the region recovered, the Initiative’s focus shifted to addressing the remaining and new challenges in the financial industry, including the resolution of non-performing loans, the development of local capital markets in emerging Europe, funding innovation, and green transition.

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Wednesday, 27 October 2021

HNB Governor Says in 2022 Exact Date for Switching to Euro Will Be Defined

ZAGREB, 27 Oct 2021 - Croatian National Bank (HNB) Governor Boris Vujčić said on Wednesday that next year Croatia would know the exact date for its changeover to the euro, adding that a strong campaign will be conducted in 2022 to inform the public of all the details.

Addressing a conference on what switching to the euro would mean for SMEs, which was organized by the 24 Sata daily, Vujčić underscored that Croatia has set a date for the introduction of the euro currency, but next year only will we know the exact date of the euro changeover.

If that is to be 1 January 2023, we have only 14 months for preparations, he said.

A law will be passed precisely regulating the changeover from the kuna to the euro, and the main principle will be to protect consumers so they are not brought into a worse position than they were prior to the conversion.

"The experience in all the countries that have entered the euro area indicate that wages increased more than prices while the standard of living increased and that is why the support for the euro in those countries is very high," he underscored. In other transition countries where the euro was introduced, the support is about 80% which Vujčić believes is proof that the fear of declining living standards is unreasonable.

Dual display of prices

The governor said that in the countries that adopted the euro the practice of dual display of prices was useful.

The dual display will also cover wages and not only prices, he also explained.

The logistics of exchanging the currencies have been worked on for a year and a half already, he said.

Payments will continue in both currencies for the next two weeks after the euro is introduced, explained Vujčić.

Finance Minister Zdrako Marić also underscored that based on current forecasts, the earliest the euro could be introduced is 1 January 2023.

He explained that prices in both currencies will be shown on articles five months prior to introducing the euro and for 1 year after its introduction. Marić believes that legislation related to the euro should be adopted in the spring of next year.

The president of the Croatian Chamber of Crafts and Trades (HOK), Dragutin Ranogajec, expects problems to occur during the 14 day period of payments in both currencies with regard to accounting and fiscalisation.

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Monday, 18 October 2021

Vujčić: No Room for Panic About Possible Rise in Interest Rates

ZAGREB, 18 Oct 2021 – Croatian National Bank (HNB) Governor Boris Vujčić said on Sunday that Croatian citizens should not fear a sudden rise in loan installments as a result of the rise in the inflation rate.

Speaking in an interview with the HRT public broadcaster on Sunday evening, Vujčić said there was no room for panic that interest rates would rise abruptly, and with the loan payments, for citizens who have long-term loans with variable interest rates.

He noted that the interest rates had been at record low levels since 2015 and that throughout that time the HNB was warning that at one point they would get back to normal and start increasing.

He said that this approach and the HNB's recommendation to the banks to offer fixed interest rates to citizens had led to the share of the variable interest rate in loans decreasing from 90 to the present 38 percent. He added that the majority of citizens have a fixed interest rate for the first five to ten years of loan repayment, after which the interest rate becomes variable.

"This means that in normal scenarios no one will feel any significant rise in interest rates in the short term," Vujčić said.

Should the inflation rate remain high for a longer period of time, interest rates might grow at a greater speed, he said, illustrating this with an example: "If your loan matures in 20 years or more, then a one percentage point rise in the interest rate might increase your loan installment by approximately 9.5 percent, provided you have no protection such as a fixed interest rate."

Vujčić said it was not possible to make a general recommendation to citizens with long-term loans and variable interest rates to apply for a switch to loans with fixed interest rates. He, however, recalled that in 2017 the HNB had recommended to the banks to make this possible for those who make such a request.

The HNB governor said he did not expect the rise in energy prices to have the same inflationary impact it had this year.

"Energy contributed to half of the total rise in prices, which is absolutely the greatest contribution to inflation. Looking at the markets, next year energy prices are expected to stabilize or even start falling slightly," he said.

He, however, warned there was still considerable uncertainty because if prices continued to rise, that would definitely put additional pressure on inflation.

"However, we cannot expect, in any reasonable scenario, the rise that we had this year when prices rebounded from the very low levels in the pandemic year 2020 to normal levels. I do not expect anything similar to the inflationary pressure we saw this year, but energy prices are definitely important for the overall inflation trend," Vujčić said.

The HNB expects inflation to pick up to 2.3 percent this year before slowing to 2.1 percent in 2022.

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Monday, 11 October 2021

CNB Governor Boris Vujcic: Croatian Inflation Rate Could be Higher

October the 11th, 2021 - CNB Governor Boris Vujcic has stated that the Croatian inflation rate could be higher, adding that while forecasts of domestic economic growth are positive, there are many negative risk projections to take into proper consideration, too.

As Poslovni Dnevnik writes, CNB Governor Boris Vujcic spoke in Croatian Parliament on Thursday and explained that, unlike the forecasts for Croatian economic growth, which are generally very good, the projections of inflation are dominated by negative risks, ie those that could lead to higher inflation rates.

In Parliament, where he presented the Croatian National Bank's semi-annual piece of information on the nation's overall financial situation, price stability and the implementation of monetary policy in the second half of last year, Vujcic reminded those present of the CNB's projections for economic growth of 8.5 percent this year, and of 4.1 percent in 2022, which, he estimated, will have a positive impact on both the situation with employment and the situation with average wages.

"Due to the sheer amount of uncertainties which still remain in place, it's possible that these projections will not end up actuallybeing realised, but unlike the previous ones, the positive and negative risks are balanced," said Vujcic. He explained that the negative risks to the domestic economy relate to the possibility that the epidemiological situation in the Eurozone will worsen in the fourth quarter and that any remaining restrictive measures will be tightened once again, which would result in weaker foreign demand and as such, negatively affect Croatian exports.

When it comes to the situation with inflation, it will accelerate to 2.3 percent this year, and slow slightly to 2.1 percent in 2022. In the previous part of the year, the acceleration of inflation occurred mainly under the influence of rising energy and food prices, said CNB Governor Boris Vujcic, emphasising the fact that the current projections of inflation are dominated by negative risks, ie those that could lead to higher rates eventually.

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Thursday, 23 September 2021

Croatian Eurozone Accession: Changes to Begin as Early as Next Summer

September the 23rd, 2021 - Croatian Eurozone accession might still seem like a far away event on the domestic political stage, but it is edging ever closer and things are set to start being quite significantly different as of next summer.

As Poslovni Dnevnik writes, preparations for Croatian Eurozone accession have already started, and one of the measures is to ensure that prices don't increase significantly, which is something most people fear when asked what their worries surrounding the process of phasing out the Croatian kuna is.

Tihomir Mavricek pointed out that this will be among the very first things that will be tackled, and that the fixed exchange rate will be determined just before the decision of the EU Council on the introduction of the euro as Croatia's official currency.

"It will be around 7.53, but it will finally be determined in May or June next year and will become valid from January the 1st, 2023. Until December the 31st, 2022, the commercial exchange rate will be valid, it'll be as we have it now," he explained for HRT.

"There's no need to be afraid of price increases"

Many people are afraid of price increases as a result of Croatian Eurozone accession, but Mavricek has assured that the practice of countries that have already adopted the euro has shown that the replacement of the national currency has had very little effect on price growth, ie inflation.

"The countries that first adopted the euro had a small so-called harmonised growth of the consumer price index, which ranged between 0.09 and 0.28 percentage points. Countries that later adopted the euro had one which stood at around 0.3 - so we don't expect any significant impact on prices, maybe of some 0.37 percentage points, with the biggest impact coming from services and a slightly smaller number of commonly used products, such as pastries and newspapers,'' said Mavricek.

After the introduction of the euro in neighbouring Slovenia, prices in transport, restaurants and hairdressing/beauty salons increased, while in Slovakia the prices of food and construction works increased.

"Research has shown that these increases mostly regard products that don't affect people with lower incomes when compared to those with higher incomes, such as sectors like accommodation services, restaurants, and sports services - these are usually services used by people with higher incomes," explained Mavricek.

For more on Croatian Eurozone accession, check out our dedicated politics section.

Thursday, 2 September 2021

Governor Says Legal Changes to Cut Banks' Revenue by More Than HRK 100mn Annually

ZAGREB, 2 Sept 2021 - Croatian National Bank (HNB) governor Boris Vujčić has said that the HNB's legal proposal is aimed at regulating tacit overdrafts the same way authorized overdrafts are regulated, which would result in greater consumer protection but also cause a drop in bank revenue of more than HRK 100 million annually.

Addressing a news conference on Thursday, Vujčić recalled the HNB's proposal for amendment of the Consumer Credit Act in the segment concerning authorized and tacit overdrafts. The HNB will agree to those changes with the government and it will also meet with bank representatives, Vujčić said, noting that the final form of the bill had still not been defined.

Vujčić said that the HNB completed a market analysis in Q1 2021 and that its findings, together with legal proposals, were presented to the Finance Ministry in April.

The analysis of the overdraft market was launched in 2020, showing that a large portion of overdrafts had changed from authorized to tacit overdrafts.

Vujčić stressed that the Consumer Credit Act, adopted much earlier, was designed to make tacit overdrafts an exception, but that when it was established that most overdrafts had turned into tacit overdrafts, a decision was made to impose the same regulation mechanism for those overdrafts as for authorized overdrafts.

In the case of authorized overdrafts, the effective interest rate is capped and banks have the obligation, when opting to cancel that service, to offer their client the possibility of repaying their debt in 12 installments.

"This legal proposal is an attempt to set a maximum effective interest rate (on tacit overdrafts) and make banks offer repayment in installments if their clients get into problems. Banks can do that now but they are not obliged to. In the future, they will have to do just that," said Vujčić.

He noted that the legal proposal was not about abolishing tacit overdrafts.

New agreements on tacit overdrafts will thus have to be limited to 90 days and HRK 1,500, and Vujčić said that the adoption of the new law could result in a drop in bank revenue of HRK 100 million annually, noting that that would depend on the final version of the bill, however, the estimate was not expected to change significantly.

Depending on the type of loan, wage, and overdraft amount, consumers would be able to save between HRK 150 and 450 a year.

Interest rates should reflect product-related risks 

Vujčić also said that of some 1,000 consumer complaints the HNB received in 2020, seven referred to tacit overdrafts, and when asked if the HNB could have reacted sooner, he said that this was not a problem previously as the effective interest rate on tacit overdrafts was not high.

The average effective interest rate for overdrafts grew in 2020 because banks raised their fees, not interest rates. "Before that, we did not have any reason to intervene, and now we do," he said.

Vujčić said that the matter was a very complex and sensitive one and that putting a cap on the interest rate was not, as believed by some, necessarily the best solution because it could exclude a large number of citizens from the market.

He noted that interest rates should reflect product-related risks and that in principle tacit overdrafts indeed entailed the most risk as there was no collateral and the client's creditworthiness was not checked, hence the high-interest rate.

He added that interest rates on tacit overdrafts in Croatia were lower on average than in EU countries that had not introduced the euro and higher than in those that were part of the euro area, but that that was not the case with other financial products.

Speaking of inflation, Vujčić said that there was no risk of very high inflation rates.

"However, in the euro area the inflation rate is slightly higher than forecast but we are still between 2% and 3%, which should not be worrying," he said.

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Tuesday, 31 August 2021

Household Deposits Rise From June to July by 3.3%

ZAGREB, 31 Aug, 2021 - Household deposits rose by 1.4% that is by 3.3 billion from June to July, and increased 8.4% on the year, according to the data released by the Croatian National Bank in its "Comments on monetary developments for July 2021" publication.

Total deposits in Croatia reached HRK 350.7 billion in July, going up by 8.5 billion kuna or 2.5% from June, and jumped by 31.1 billion kuna or 9.7% comapred to July 2020.

"The growth in total placements of monetary institutions to domestic sectors continued to accelerate in July, mirroring growing household lending, primarily in the form of housing loans that rose fuelled by the government subsidy programme. The placements to other financial institutions also rose, while placements to corporates fell," the HNB says in its comment.

"Total placements of monetary institution to domestic sectors (except the central government) rose in July by HRK 1.5bn or 0.6% (transaction-based) from June and stood at HRK 242.2bn at the end of the month. The annual growth rate of total placements accelerated from 3.8% in June to 4.1% in July. The monthly increase in placements was almost entirely due to the growth in loans which stood at HRK 236.5bn at the end of July," says the central bank.

Broken down by sectors, household loans rose the most (HRK 1.3bn or 1.0%) driven by the government subsidy programme, which continued to propel a strong growth in housing loans (HRK 1.1bn or 1.7%), while general-purpose cash loans continued to rise moderately (HRK 0.2bn or 0.4%).

On an annual level, the growth in housing loans continued to accelerate, having risen from 10.1% to 10.6% and so did the growth in general-purpose cash loans, which rose from 0.2% to 0.6%, resulting in an acceleration in the growth of total loans to households from 4.0% to 4.3%, the central bank reports.

(€1 = HRK 7.483066)

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