The Croatian National Bank intervenes to help the kuna.
Croatian National Bank intervened in the foreign exchange market yesterday, in order to defend the exchange rate of the kuna towards the euro, reports Index.hr on October 1, 2015.
Yesterday, shortly after the opening of the market at levels of about 7,655 kuna per euro, the kuna came under pressure from the increased demand for foreign currency by domestic banks and institutional investors and has weakened to a level of about 7,675 kuna per euro.
In order to mitigate depreciation pressures on the kuna, Croatian National Bank intervened by selling foreign currency to banks in the total amount of 268.3 million euros at the average exchange rate of 7.638161. The exchange rate stabilized at around 7,649 kuna per euro where it remained for the rest of the trading day.
The strengthening of the European currency against the kuna is bad news for those who have loans in euros, because their debt is rising. The weakening of the kuna is a consequence of conversion of loans in Swiss francs into euros.
Banks have to execute the conversion at historical exchange rates, and their losses are recorded in the kuna, but at the same time they are losing their foreign currency assets, which must be compensated by purchasing foreign currency.
“When the Ministry of Finance in late August announced the intention of adopting a new legal solution which would allow customers of banks who took out loans in Swiss francs to convert them into euros at historical exchange rates at the date when the loans were made, the domestic financial market reacted as expected. Since the conversion is being done at historical exchange rates and bank losses are recorded in the kuna, with simultaneous reduction in their foreign assets, banks have to purchase foreign currency assets. Therefore, financial institutions were immediately aware that, due to the projected losses, they will have to buy the same amount of foreign currency on the foreign exchange market. The market has reacted in a logical manner, with a consequent increase in the euro/kuna exchange rate”, explain analysts of Privredna Banka Zagreb.
