ZAGREB, March 5, 2018 – Last year, commercial banks in Croatia saw a decrease in interest rates in all segments of lending operations, a fall in profit owing to the situation at the indebted Agrokor food and retail conglomerate, and the largest drop in non-performing loans since the outbreak of the financial crisis in 2008, the Croatian Banking Association said at a presentation of its latest publication, “Reviews”, in Zagreb on Monday.
In 2017, interest rates on loans decreased by between 0.5% and 0.6% in nominal terms, the largest decrease in the last ten years. Interest rates on housing loans, which account for most household loans, fell from 4.56% to 3.90% on average, which is also the largest drop in the last decade.
“In Croatia, we have seen a delayed reaction, a delayed exit from the recession. After this adjustment in 2017, Croatia actually joined its peers in terms of levels of interest rates,” HUB director Zdenko Adrović said.
Banks’ net profit fell by 30%, from 5.1 billion kuna in 2016 to about 3.6 billion kuna in 2017, mostly as a result of costs of value adjustment and provisions due to the Agrokor crisis.
Adrović said that no increases in loan loss provisions were expected this year. He said that the main question was what would happen with Agrokor, adding that everyone was hoping for a settlement.
He said that last year banks’ operations were marked by tougher competition which prevented a more perceptible reduction of operating costs. He said that only increases in the volume could result in considerably higher revenues in the future.
Non-performing loans have seen the biggest decline since the outbreak of the financial crisis. Last year, bad loans reached 8.4 billion kuna and 70% of them related to companies.
As for the liquidity of the banking system, Adrović said that the reserve requirements rate was 12% and was basically the highest in the European Union. “We have an old-fashioned and rigid system that does not suit the needs of either the banking system or the economy. That is why a large sum of money is still blocked with the central bank. In that regard, there is a great reserve of liquidity,” he said.
Adrović said it was difficult to predict a possible rise in lending this year given that the economy grew just 2% in the last quarter of 2017, there was a lack of investments, and the chief GDP driver was personal consumption.
