Croatian Banks Making Big Losses Due to Loans in Swiss Francs

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Croatian banks are suffering due to the Swiss Franc loan crisis.

It is not a surprise that the conversion of loans in francs into euros would result in losses for Croatian banks. And Croatian National Bank has just announced the first preliminary business results for all banks in Croatia, which includes the estimated cost of the conversion of loans indexed in Swiss currency, reports on December 1, 2015.

In addition to annulling their profits made in the first half of the year (1.4 billion kuna of pre-tax profits) and positive operating results in the third quarter, the banking sector has recorded a loss of 4.5 billion kuna. The worst hit bank is Hypo Alpe-Adria Bank, which has losses in the amount of two billion kuna. Fortunately, Hypo is one of the major banks which already had the most capital reserves (30.8 percent), so even after the loss it still stands at a solid 19 percent. However, it should be noted that Hypo, unlike the other seven banks which were involved in franc loans, had a negative result in the first six months as well, due to the process of restructuring and ownership changes.

Among those banks which the issue of loans in francs has hit the most is Erste Bank as well, which turned semi-annual profits of 97 million kuna into a 904 million kuna loss. On the other hand, SG Splitska Banka is the only of the eight banks with a portfolio of loans in francs which has managed to stay in positive territory. In addition to being a relatively minor lender of loans in francs, it started to reserve the necessary funds much earlier than other banks, so financial consequences have already been partially included in earlier quarters.

With 110.7 million kuna in profits during the first nine months of the year, Splitska Banka is the biggest profit-maker in the market. Croatian Postal Bank (which did not lend any loans in Swiss francs) had somewhat lower profits than Splitska Banka, but is still the only other bank on the market with profits over 100 million kuna.

Among the large banks that had negative results after nine months, Privredna Banka could return to profits by the end of the year. After the estimated cost of conversion, it ended the third quarter with 237.7 million kuna loss which will probably be turned into profit by the end of the year. Given the objections to the calculation of loan conversions, disillusionment of some borrowers, as well as requests for extension of deadlines, it could take a while until the final costs for the Croatian bank sector are calculated.


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