Friday, 15 July 2022

Croatian Eurozone Accession: Should You Take Out a Loan Now or Later?

July the 15th, 2022 - Croatian Eurozone accession is now very rapidly approaching, but with all of these changes and upheavals on the way, should you take out a loan now in Croatian kuna, or wait until after January the 1st, 2023?

As Poslovni Dnevnik writes, the Croatian National Bank (HNB/CNB) said that "Croatian Eurozone accession has no implications for the riskiness of kuna loans". Regarding interest rates - if the interest rate is fixed, it will remain fixed, and if the interest rate is variable, it will remain so, they claim.

"On the day of the introduction of the euro, the principal amount of the kuna loan will be converted into euros at a fixed conversion rate to be determined by the Council of the European Union without any cost to the bank's client," they explained from the CNB for N1.

"Croatian Eurozone accession has no implications for the riskiness of loans denominated in euros. In the case of euro loans, which also applies to kuna loans with a currency clause in euro, there will be no need to recalculate the principal amount on the day of the introduction of the euro because it's already expressed in euros. When it comes to the interest rate, the approach is going to be the same as it is with kuna loans: if the interest rate is fixed, it will remain fixed, and if it's variable, then it remains variable," they added.

What will happen to interest rates?

Financial analyst Andrej Grubisic said that the conversion rate itself is no longer the primary category, but interest rates are...

"The exchange rate at which the kuna will be converted into euros is already known, it will be at a rate of 7.53450, so the exchange rate difference is de facto negligible. I don't see any room for serious arbitrage or calculations in this regard. The bigger question is what the price of an apartment will be six months from today, not what the exchange rate will be. "Whether an apartment (per square metre) will cost several tens of euros more or less is a far more important question at this moment in time," said Grubisic, adding:

"Another thing is whether six months from today the interest rates will be slightly higher than they are today.''

Grubisic also noted that the president of the Croatian Association of Banks, Zdenko Adrovic, recently stated that he wouldn't be surprised if, in the foreseeable future, interest rates are one to two percentage points higher than they are today. Let us remind you that Adrovic told N1 Studio live that the first increase in interest rates by 0.25 percent will come in July, and the next will come very soon after that, in September, also by 0.25 percent.

"Given the fact that inflation is high, we should expect that there will be an increase in interest rates", Grubisic said, before adding: "I don't think it's unrealistic to think that in 12 to 18 months from today, we'll have one or 1.5 percent higher interest rates than we have today.” He also pointed out that "even today there are pressures for interest rates to go up".

"Therefore, people shouldn't be surprised if the interest rate on a housing or other loan in six months is 0.3 or 0.5 percent higher than it is today, because we were in a period of extremely low interest rates, unusually low ones, which is unsustainable if you have inflation that is higher than the interest rate," said Grubisic.

He was asked if this means that if we can expect higher interest rates in the near future, it is better for people to take out loans now, while the kuna is in force, than to wait for Croatian Eurozone accession on the 1st of January next year? His answer was a clear one: "Exactly."

“It's wise to go for a fixed rate loan and avoid any form of calculation or uncertainty that comes from variable interest rates. So, if we're talking about housing loans, given that these are obligations which are fixed for a long period of time, nobody can tell you what will happen in five, let alone in ten or fifteen years. If today it seems to you that it's slightly higher than the existing variable interest rate, it may be today, but in the future it may change. That way, you get some certainty and you know what you can count on, there's no uncertainty with fixed interest rates," Grubisic concluded for N1.

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

Thursday, 5 May 2022

Compensation For Converted Loans Outside Scope Of Consumer Protection Directive

ZAGREB, 5 May 2022 - Delivering a ruling on the right to compensation for overpaid interest for loans pegged to a foreign currency after conversion, the EU Court of Justice has found that these loans fall outside the scope of the consumer protection directive.

The court published a decision on Thursday saying that the directive of 5 April 1993 on unfair terms in consumer contracts should be interpreted in such a way that contractual provisions that reflect national law under which the seller or service provider was obliged to propose to the consumer an amendment to their original contract by means of an agreement the content of which was determined by those provisions and which the consumer was able to accept, fall outside the material scope of the directive.

This refers to the case of A.H. vs Zagrebačka Banka regarding the reimbursement of the amount the bank allegedly unduly gained pursuant to the unfair provisions that were initially contained in the loan contract that the parties concluded and were subsequently amended via an annex that contained the amendments foreseen in Croatian law.

Franak: Decision to be made by Supreme Court

The ruling, in this case, has been pending since October 2020 when the Municipal Civil Court in Zagreb applied to the EU Court and independent attorney Juliane Kokott said that the matter did not fall within the jurisdiction of the EU Court.

The Franak association of debtors with loans pegged to foreign currencies said on Thursday that the court did not rule that it was not competent for this case, yet it did not answer the questions asked. That means the decision on the right to compensation of all consumers with converted loans will now be passed on to the Supreme Court, the NGO said.

"We have not been compensated for and the Supreme Court has to adopt the only just decision and that is to determine our rights based on expert evaluation," because without a proper calculation it is not possible to determine whether the balance between the rights and obligations of consumers and banks was achieved by the loan conversion, the NGO concluded.

HUB: EU Court confirms Croatian case is specific

The Croatian Banking Association (HUB) said that the ruling of the Court of Justice of the European Union confirmed HUB's position that the Croatian case of CHF-indexed loans was specific compared to other EU countries because the conversion was carried out in accordance with a law that was binding on banks but voluntary for consumers.

HUB cited the court's finding that Directive 94/13 on unfair terms in consumer contracts is not applicable to contractual provisions that reflect the mandatory provisions of national law or, in the Croatian case, the provisions of conversion agreements concluded in accordance with the provisions of the Act amending the 2015 Consumer Credit Act.

It is assumed that the national legislature has, through its intervention, established a balance between the rights and obligations of the contracting parties and such a decision is in conformity with the case law, HUB said, recalling that 94 per cent of CHF loan holders voluntarily converted their obligations.

HUB noted that under the amended law the banks bore the full cost of the conversion, which totalled HRK 7.5 billion (€1bn), and that the conversion ensured that CHF loan holders had equal status to that of euro loan holders.

"Bearing this in mind, any further compensation of one category of debtors would be discriminatory and would distort the balance established by the law," HUB said..

It also noted that the Croatian Supreme Court has found that conversion agreements concluded pursuant to the amended Consumer Credit Act are valid and have legal effect where the provisions of the basic loan contract concerning the floating interest rate and foreign-currency clause have been found null and void, and that CHF loan holders have the same status as euro loan holders.

HUB said that this position was now additionally confirmed by the EU Court and that the validity of the conversion and its effect on the reimbursement of consumers should no longer be a matter for the courts.

For more, check out our business 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, 13 April 2022

Croatian Banks Continue to Create Stricter Loan Conditions

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.

Wednesday, 16 February 2022

Croatian National Bank Economist Vedran Sosic Talks Interest Rate Growth

February the 16th, 2022 - Croatian National Bank economist Vedran Sosic has spoken out about interest rates and when prices in general might return to some form of normality.

As Poslovni Dnevnik writes, economist Vedran Sosic has stated that currently, inflation is expected to peak in the second quarter, after the peak of electricity and gas prices, and should calm down entirely by the end of the year. Raw material and energy prices have boosted inflation and it's normal that we're currently troubled by the price of oil, it is difficult to predict what will happen there. A slight descent is expected towards the end of the year, but all this is all still shrouded in uncertainty.

''Energy prices have quickly made their mark on prices being paid for fuel at the pumps, although we still have a limit on petrol prices, we'll see what happens with fuel costs in April - we have a package that should alleviate this spillover. Food is currently the largest contributor to inflation, with prices rising by around 8 percent, sometimes by even more. Producer food prices rose by about 4 percent, less than the case with retail. Traders say they're trying to take on part of the cost growth on margins, but according to statistics, it seems that margins haven't yet been reduced. A lot of what happened last year has already been absorbed in terms of prices, so that's something we shouldn't be seeing in the coming months,'' explained economist Vedran Sosic.

He also spoke to N1 and said that it is possible to use the growth of raw material prices to increase the price of the final product: "It's possible for that to happen. That is the greatest danger. Inflation is also a psychological phenomenon, the more we talk about it, the greater the risk that the inflationary spiral will roll, which is harder to bring back down again.''

"Interest rates will rise, but people can protect themselves now"

Commenting on interest rates on loans, CNB's main economist Vedran Sosic explained:

“Back in October last year, when it became apparent that inflation was going on, we warned people that interest rates would rise. The normalisation of monetary policy was expected, those expectations haven't really altered and so these jumps shouldn't be sudden. For the European Central Bank, the market expectation is about half a percentage point increase in interest rates. In some markets, this growth can be seen, Croatia borrowed more when it issued bonds, so the growth of interest rates is already visible.

Every loan is different - those that come with a fixed rate are protected. Those who have a variable, again, aren't the same as what's tied in with the interest rate. An increase of one to two percentage points for those who have a loan for a period of 20 years, could mean a 10 to 20 percent higher installment, that would of course be the worst case scenario - so about 400 kuna on a loan of 4,000 kuna. The suggestion to people is to look at what rates they have, maybe reprogramme things, change the bank… Let them ask personal bankers, inquire about protection, there's still time to change those loans.'' concluded economist Vedran Sosic.

For more, check out our dedicated lifestyle section.

Tuesday, 4 January 2022

HNB: Total Loans Reach HRK 237.6 bn

ZAGREB, 4 Jan 2022 - The volume of loans issued in Croatia totaled HRK 237.6 billion at the end of November 2021, which is an increase of 3.7% compared with November 2020, according to data from the Croatian National Bank (HNB).

Total lending by monetary institutions to domestic sectors (except the central government) was HRK 243.4 billion, an increase of HRK 700 million or 0.3% compared with October 2021 and of 4.5% compared with November 2021.

Loans accounted for the majority of lending, reaching HRK 237.6 billion in November 2021. They increased by 0.3% from October 2021 and by HRK 8.5 billion or 3.7% from November 2020.

Broken down by sector, compared with October 2021, corporate loans increased by HRK 400 million, or 0.5%, to HRK 84.8 billion, while household loans rose by HRK 200 million, or 0.2%, to HRK 141.8 billion. A slight rise, of HRK 100 million or 0.5% to HRK 11 billion, was also observed with other financial institutions.

The majority of household loans included housing loans, which increased by HRK 300 million or 0.4% month on month to HRK 67.5 billion, while general-purpose cash loans remained almost unchanged, at HRK 53.3 billion.

Compared with November 2020, corporate loans rose by HRK 600 million or 0.7%, and household loans by HRK 5.7 billion or 4.2%. Loans to other domestic sectors went up by HRK 2.2 billion or 25.1%.

On an annual level, total loans to households slowed down from 4.9% in October to 4.8% in November, reflecting the slowdown in the growth of housing loans, from 11.3% to 10.5%, due to the marked growth of subsidized loans issued in the same period of last year.

The slowdown in household lending on an annual level was partly mitigated by the stagnation of general-purpose cash loans, which decreased in the same month of the previous year, which increased their annual growth rate from 1.6% to 2.0%. On the other hand, corporate loans continued to accelerate on an annual level, from 1.8% to 2.2%, after stagnating earlier in the year.

(€1 = HRK 7.5)

For more, check out our dedicated business section.

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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