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.

For more on politics, follow TCN's dedicated page.

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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Saturday, 28 August 2021

Croatian Sovereignists Launching Campaign for Referendum Against Euro Introduction

ZAGREB, 28 Aug, 2021 - A member of parliament from the Croatian Sovereignists party, Marko Milanović Litre, said on Saturday that his party was launching a campaign for a referendum on the introduction of the euro, criticising the government for ignoring citizens' opinion on the matter.

Prime Minister Andrej Plenković, Croatian National Bank Governor Boris Vujčić and a whole set of Brussels bureaucrats have decided on their own that Croatia should join the euro area, Milanović Litre said in a Facebook post, noting that his party had launched a campaign to protect the national currency, the kuna.

"Referendum is the only way to accomplish that," he said.

Criticising Plenković and his government's attitude to referendum initiatives and what he called disregard for citizens' role in them, Milanović Litre said that that attitude was evidenced by Plenković's recent statement that "from a formal and legal point of view, a referendum on the introduction of the euro was already held in 2012 and a new one is not necessary."

The MP said that ballots for the 2012 referendum on Croatia's accession to the EU, to which Plenković was referring, featured only one question: "Are you in favour of Croatia's accession to the European Union?" and that the referendum campaign made no mention of accession to the euro area.

The Croatian people have the right to state their opinion on all important topics that affect their lives, notably decisions whereby a part of their hard-won sovereignty is ceded to Brussels, said Milanović Litre, adding that Croatia was poorly prepared for EU membership.

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Tuesday, 3 August 2021

Total Household Loans Reach HRK 138,9 Bn in June

ZAGREB, 3 Aug (Hina) - Total household loans in Croatia reached HRK 138.9 billion at the end of June 2021, increasing by HRK 4.2 billion from June 2020, according to the data provided by the Croatian National Bank (HNB).

The annual nominal household loan growth rate was 3.2%, picking up from 2.7% in May 2021, Raiffeisen Bank (RBA) said in its analysis of the central bank's data.

The share of kuna-denominated loans in total loans was 55%, the same as the month before.

Household credit claims increased by 1.9% or HRK 2.7 billion since the start of the year.

The annual household loan growth rate increased from 3.5% to 4%, with the growth of housing loans picking up from 9.7% to 10.1%. 

(€1 = HRK 7.5)

For more about business in Croatia, follow TCN's dedicated page

Thursday, 29 July 2021

Bank Warns of Potential Jeopardy Despite Good Croatian Economic Outlook

July the 29th, 2021 - The Croatian National Bank (CNB/HNB) has warned of potential issues that the domestic economy might yet face despite the currently favourable Croatian economic outlook.

As Poslovni Dnevnik writes, due to the possibility of a new wave of the coronavirus pandemic and potential lockdowns, there is room for the further growth of property prices above their real value with the risk of a sudden and sharp decline, as well as the growth of bad loans after the abolition of measures and grants. These are just a couple of potential issues which could arise and directly threaten Croatia's still fragile recovery and growth throughout the rest of 2021.

The current Croatian economic outlook is good, and that growth is expected to be between 5 and 7 percent, as most analysts see it, while the most optimistic of all is the CNB itself, which in its baseline scenario expects as much as 6.8 percent of GDP growth this year. Personal consumption, investment, as well as exports are growing, and a massive stimulus from the National Recovery and Resilience Plan is expected.

Of course, all of this mostly depends on the summer season for which tourism workers are now trying to make last for as long as possible and bring at least 70 percent of revenue from pre-pandemic 2019. The success of the 2021 tourist season depends mostly on the (non)materialisation of this first risk, reports Novi list.

CNB Governor Boris Vujcic recently explained that the aforementioned growth is higher than 6 percent (6.8 percent) of the CNB's basic scenario: this is what the CNB expects as the most probable course of events, and it implies that the worst of the crisis is behind us, but dangers remain.

In short, the national bank doesn't expect that the aforementioned risks will materialise, however, there is a danger which remains and the central bank is aware of it. Therefore, if there was a significant deterioration of the epidemiological situation and the fourth wave did arrive, Vujcic said that the Croatian economy would survive another lockdown, but growth, he said, would be slower due to the situation in the most affected sectors.

There are also sectors that work independently and aren't really influenced by the pandemic, and they would still pull in some growth in such a dire scenario. The CNB has now, in a new issue of its publication Macroprudential Diagnostics, enumerated these potential triggers for the creation of a risk and analysed them in detail.

“The great uncertainty and unpredictability of the course of the pandemic poses risks in the coming period, despite the growing proportion of the population being vaccinated. The possibility of a new wave after the summer months is an important risk to take into consideration for the continued recovery of Croatian economic activity.

The possible worsening of the epidemiological situation and the strengthening of epidemiological measures, including localised measures, would adversely affect the speed of recovery and the Croatian economic outlook, as well as the sustainability of public finances,'' the CNB said.

Delaying Croatian economic recovery and premature withdrawal of measures introduced during the pandemic could lead to a deterioration in the debt service capacity of part of the private sector, especially those in which debt levels are high and support measures contribute significantly to maintaining relatively stable incomes. Total exposure to systemic risks during the second quarter of 2021 remain high, according to the CNB.

Further progress in terms of the vaccination of the population, together with the mitigation and eventual abolition of epidemiological measures, should support the continuation of the economic recovery during 2021 and secure a decent Croatian economic outlook going forward.

For more, follow our lifestyle section.

Monday, 26 July 2021

Croatian National Bank Answers Important Question About Eurozone Entry

July the 26th, 2021 - The Croatian National Bank has revealed just how long we'll be able to make payments in both Croatian kuna and in euros as the country prepares to join the Eurozone at the beginning of 2023, as is currently planned.

As Poslovni Dnevnik writes, according to previous announcements, Croatia should enter the Eurozone and as such finally adopt the on January the 1st, 2023, and before the euro officially becomes the country's official currency in replacement of the kuna, many preparations will have to be made.

When it comes to just who will be in charge of the technical realisation of some important things about the introduction of the euro and how the euro will work at the very beginning, the Croatian National Bank confirmed for Net.hr that the new euro coins of the Republic of Croatia will be made at the Croatian Monetary Institute.

"The production of euro circulation coins with the Croatian national symbols will begin at the earliest six months before the day of the introduction of the euro, ie after the EU Council Decision that Croatia will introduce the euro," the Croatian National Bank explained.

With the day of the introduction of the euro as the national currency of the Republic of Croatia approaching, a sufficient amount of euro coins will be prepared for circulation to meet the needs of all people and business entities, the national bank added. What everyone is interested in at the moment, however, is just how long it will be possible to use both kuna and euro in parallel before the kuna is phased out and placed in this history books entirely.

"During the first two weeks from the day of the introduction of the euro, kuna and euros will remain in circulation at the same time, and traders should return the rest of the money to customers which have paid in kuna exclusively in euros," the Croatian National Bank explainsed After that period, the euro will be the only legal tender allowed in the country, they added.

"In order to ensure a smooth transition to the new currency, in a short transition period, the kuna and the euro will have the status of legal tender at the same time. In other words, people will be able to pay in both currencies in the first two weeks starting from the day the euro is introduced in stores. After two weeks from the day of the introduction of the euro, the euro will be the only legal tender in the Republic of Croatia,'' they stated from the Croatian National Bank.

Money, meaning Croatian kuna, can be exchanged for euros free of charge for the first six months of the euro being in use in the country. However, if someone does forget to exchange any kuna cash they have into euros after that deadline, it will still be possible. Namely, in the first six months from the day of the introduction of the euro by the bank, Fina and Hrvatska posta d.d. will allow kuna cash to be exchanged for euros in all branches free of charge, and in the next six months they will be entitled to charge a fee for this service.

For more, follow our dedicated lifestyle section.

Wednesday, 21 July 2021

Croatian National Bank (HNB) Currency Committee Proposes Five Motifs For Euro Coins

ZAGREB, 21 July, 2021 - The Croatian coat-of-arms, a geographical map of Croatia, the marten (Croatian: kuna), the Glagolitic script and Nikola Tesla are motifs proposed for the Croatian side of euro coins, the Croatian National Bank (HNB) said on Wednesday.

The HNB Currency Committee today defined the final proposal for motifs for the national sides of future Croatian euro coins, which will now be considered by the National Council for the Introduction of the Euro as Official Currency in the Republic of Croatia, and then the government will adopt a conclusion.

The Croatian coat-of-arms will be used as a background on all coins, and other motifs will be used on coins of different denominations so that the 2 euro coin will feature a geographical map of Croatia, the 1 euro coin the marten, the 50, 20 and 10 cents coins Nikola Tesla, and 1, 2 and 5 cents coins the Glagolitic script.

The HNB said the main criteria for the selection was that the motif is acceptable to the general public and that it is a national symbol.

The rating given by citizens via an online survey at euro.hr, in which nearly 50,000 citizens took part, and a structured national survey on a sample of 1,000 citizens also influenced the Committee's final decision.

Based on the selected motifs, the HNB will announce a tender for the design of the national side of the euro coin. In mid October, the HNB will send the design of the motifs to the European Commission and the Council of the European Union, the press release said.

The production of euro coins with the Croatian national side should start at least six months before the introduction of the euro, that is the decision of the Council of the EU that Croatia is introducing the euro.

For more about politics in Croatia, follow TCN's dedicated page.

Wednesday, 21 July 2021

Croatian National Bank (HNB): 85% of Croats Hold at Least One Payment Card at End Of 2020

ZAGREB, 21 July, 2021 - At the end of 2020, 3.45 million Croatian consumers had at least one payment card, which means that of 4.05 million residents, 85% possessed cards for cashless payment,  according to the data provided by the Croatian National Bank (HNB).

The HNB's publication on cards and card transactions in 2020 shows that as many as 8.78 million such cards were registered at the end of 2020, which was down by 4.5% compared to the end of 2019.

Thus, 85% of the population held at least one payment card, more than 29% held at least two payment cards, and 17% three cards.

 Also, 240,264 payment card holders were business entities.

The HNB says that 4.83 million cards were used during 2020, 3.55 million were unused and 0.55 million were blocked.

As many as 6.92 million cards were debit cards (79%), up 0.41%. The remaining 21% (1.85 million) were credit cards, down by 20.32% compared to the end of 2020.

This decline in the number of credit card was ascribed by the HNB to the business decision of American Express to leave Croatia's market.

The HND data shows that there were 21 credit institutions and two electronic money institutions as payment card issuers in Croatia last year.

For more about business in Croatia, follow TCN's dedicated page.

Sunday, 18 July 2021

HNB Governor: Croatia's Q2 GDP Growth Rate Likely to Be About 18%

ZAGREB, 18 July, 2021 - The Croatian National Bank (HNB) Governor, Boris Vujčić, said on Sunday that Croatia's economy would likely reach a growth rate of about 18% in the second quarter of 2021, which was partly due to the low base in the Q2 2020 when the country had experienced a strong downturn.

Vujčić told the press in Dubrovnik where he had formally opened the 27th international economic conference, that Croatia's economic activity for the whole of 2021 would likely rebound at a rate of 6.8%, however, the epidemiological situation caused by the COVID pandemic still created uncertainties.

Vujčić explained that in the worst-case scenario, the GDP could rise by 4.8% in 2021.

The governor underscored a significant role of the government that provided job-retention grants which helped save jobs and made it possible for the recovery to be faster.

The crisis has made the ongoing digitisation processes faster, prompting remote working. I expect a large number of people to go back to work sites. Only after all things go back to normal, we will be provided with the real picture regarding the labour market that has behaved during the pandemic differently than during the big financial crisis in 2009 and 2010. In Croatia, we have already reached the 2019 levels in terms of employment figures and we are now faced with the recurring problem of shortage of skilled workforce, he said.

Commenting on the European Union's Next Generation plan, he said that that would be crucial for the economic recovery in the medium term.

In the next two years, the maximum of available funds will be tapped, and this amount of the funds withdrawn from the EU will have a positive impact on Croatia's GDP, according to his explanation.

The 27th Dubrovnik Economic Conference brought together about 70 experts and researchers from abroad and Croatia as well as representatives of financial institutions, central banks and the financial sector.

Some of the topics on the agenda of the conference are the further strengthening of the role of the state, particularly through the EU Next Generation programme, exchange mechanisms, corporate bankruptcies and so on.

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