Thursday, 19 May 2022

HUB Director: We Don't Expect Extremely High Increase In Interest Rates

ZAGREB, 19 May 2022 - Croatian Banking Association (HUB) director Zdenko Adrović said on Thursday that interest rates were not expected to rise extremely high but at rates that most people would be able to bear.

Responding to questions from the press at a HUB conference on the impact of euro adoption on the Croatian financial sector, Adrović said he did not know at what pace interest rates would grow, citing discussions in the Council of Governors at the European Central Bank.

"Some are calling for a quick and sharp increase in interest rates of 0.5 per cent already in July so that there would no longer be negative rates, while others are advocating a slower and milder increase. We will have to wait for the middle of the year," Adrović said.

He said that interest rates would most likely go up, adding that statistically 39 per cent of all loans were agreed at a floating interest rate and 61 per cent at a fixed interest rate. "This means that nothing will happen to those with the fixed interest rate, while in the case of those with the floating interest rate, the changeable part of the interest rate will change, while the margin will remain fixed."

 "We don't expect an extremely high increase, but one that most people can bear. We advise citizens to check their annuities and talk to their bank about the possibility of fixing the interest rate for a future period of three or five years if they want to avoid this risk," Adrović said.


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Monday, 8 March 2021

Croatian Banking in Coronavirus Era - Revenues Sank More Than GDP

March the 8th, 2021 - The Croatian banking system has had a lot on its already full plate trying to balance out the economic and financial situation caused by the ongoing coronavirus pandemic. As the situation unfolds and remains difficult to predict, it seems that the true extent of the damage done won´t be known for a few months yet.

As Poslovni Dnevnik/Ana Blaskovic writes, the first year of the pandemic for the Croatian banking system saw profit more than halved down to 2.7 billion kuna, and the decline in total income exceeded the correction of the country´s GDP. While the domestic economy as a whole sank by a deeply concerning 8.4 percent, bank inflows plunged one and a half percentage points deeper.

Operating results exceeded 7.3 billion kuna, which means that more than 4 billion kuna was frozen through various value adjustments and provisions. The director of the Croatian Banking Association, Zdenko Adrovic, went on to discuss this further.

In 2021, the growth of lending to companies and individuals is expected to accelerate in line with recovery announcements. Will moratoriums actually be enough? Moratoriums and other measures to help clients peaked at the end of August, when their value rose to almost 40 billion kuna, of which 60 percent went to companies.

"It´s the lion's share of liquidity that has remained with companies and the population through these moratoriums, which have helped keep the steep decline in GDP at these levels," Adrovic explained, noting that these currently paused repayments stand at around 32.5 billion kuna in total. Will that be enough for businesses and citizens?

Adrovic noted that according to the rules of the European Banking Authority (EBA), the length of such a moratorium is limited to 9 months and that they must end by the end of this year.

"More than 80 percent of clients whose moratorium has expired so far have continued to pay their obligations properly. If things return to normal, tourism will kick off again and then that should be enough," he said.

Last year, the Croatian banking system will remember three key characteristic trends of the coronavirus crisis - monetary expansion and government wage subsidies combined with the restraint (and inability) to spend in the private sector, all of which spilled over into strong growth in deposits that have been on an upward trajectory for the past five years.

At the end of December, citizens' savings rose by 6 percent, accelerated to 7 percent in January. Banks currently have around 226.3 billion kuna, as much as 14.6 billion kuna more than before the coronavirus pandemic struck. Interest rates remained low or slightly reduced, and the margin is stable at around 2.6 percentage points.

The average price of housing loans with a maturity of over 10 years is 2.9 percent, more expensive than in neighbouring Slovenia where citizens pay 2.28 percent and cheaper than the Czech Republic, where things stand at 3.52 percent. Finally, loans continued to grow despite the ongoing crisis. Companies were accumulating liquidity when facing an uncertain future, and a proverbial hole of over 30 billion kuna opened up for the state overnight.

Total retail loans rose by 2.3 percent, and although they pulled the brake on cash loans, housing recorded double-digit growth in the last quarter due to APN subsidies and post-earthquake remediation.

The Croatian Banking Association has pointed out that a comparison of credit growth rates in European Union member states shows that "Croatian banks are in the upper half of the distribution of credit growth rates to households and companies by country, and interest rates have remained low, as if Croatia has already adopted the euro."

In the first edition of Croatian Banking Association Review for 2021, in which esteemed Croatian economist Velimir Sonje analyses business over the last year, it is pointed out that with a drop in net profit of 53 percent, net interest income was lower by 5.7 percent, and net income from fees and commissions by 10.5 percent.

Although they cut costs, this adjustment was slower, so the net result before provisions was almost 19 percent lower. The dynamics spilled over into efficiency as measured by the cost-to-income ratio, which, after a long time of approaching 40 percent, sat firmly above the 50 percent threshold.

With a capitalisation of close to 25 percent, the Croatian banking system remains stable, they have already reserved significant amounts, but we will only have a true picture of bad loans and the impact of the ongoing coronavirus crisis at the end of June, according to the aforementioned Association.

Then, the EBA's coronavirus rule is set to expire, according to which moratoriums will not count as bad loans as they would otherwise.

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Sunday, 7 March 2021

Zdenko Adrovic: Banks Hope Companies Won´t Require Moratorium Extensions

March the 7th, 2021 - The ongoing coronavirus crisis is difficult to manage even for banks as Croatian companies require moratoriums on loans and credit taken out. As the tourist season approaches, Zdenko Adrovic, the director of the Croatian Banking Association, says that banks are quietly hoping that such extensions will become a thing of the past.

As Novac/Marina Klepo writes, with the beginning of the tourist season, when Croatian companies working in the field of tourism and transport start generating income, the Croatian Banking Association believes that their creditworthiness will increase and that there will be no additional need for moratoriums.

Referring to the latest guidelines of the EBA, the EU banking regulatory body, on extending the moratorium to nine months, Zdenko Adrovic, the director of the Croatian Banking Association, stated that an expiration to that will take place on March the 31st this year, which means that the moratorium may last until the end of 2021.

¨I believe that this should be long enough, provided that everything starts to return to normal in the next few months,¨ said Zdenko Adrovic during a presentation. However, he added that he will have a much better picture of the state of Croatian companies and what happened in regard to the economy at the end of June. Whether the moratorium will be extended, obviously, will depend on further instructions from the EBA, but what is quite likely is that the share of so-called bad loans/credit will continue to grow, as well as banks' provisions for value adjustments.

The importance of support

The year of the coronavirus crisis in regard to the banking system, according to Zdenko Adrovic of the Croatian Banking Association, will be remembered for three characteristic trends: the growth of deposits, stable interest rates and the growth of loans. Back in January this year, household deposits were seven percent higher than they were in the same month last year, and compared to the end of 2019, they increased by as much as 15.6 billion kuna.

Profit and capitalisation

As expected, the public health crisis led to a deterioration in overall bank performance, with their profits more than halved last year (down 53.3 percent). Their net interest income decreased by 5.7 percent, and income from fees and commissions down by 10.5 percent. Banks responded to the decline in income with better cost management, but "costs are more rigid than income and cannot be reduced at the same pace." Despite this, Croatian banks remain "among the best capitalised banks in the world". The total capital ratio of 24.9 percent and the entry into the banking union in parallel with the entry into ERM II "guarantees stability, transition through the crisis and the readiness of banks to respond to the increased demand expected by offering new loans in the period ahead as we exit this crisis.¨