The Financial Stability Council is an inter-institutional body that designs Croatia’s macroprudential policy. It consists of representatives of the Croatian National Bank (HNB), the Croatian Financial Services Supervisory Agency (HANFA), the Ministry of Finance and the State Agency for Deposit Insurance (DAB).
The Council met on Tuesday under the chairmanship of HNB Governor Boris Vujčić to discuss main risks to the stability of the financial system. The meeting also involved Finance Minister Zdravko Marić, HANFA Board President Ante Žigman and DAB Director Marija Hrebac.
Despite the accelerated recovery of economic activity from the consequences of the pandemic, in the circumstances of continued uncertainty regarding a return to usual social contacts and business, the financial system’s exposure to systemic risks remains elevated, the Council said in a statement, citing high public debt, the financial sector’s exposure to the government, a possible rise in the number of insolvent companies and fast growing housing prices as main risks.
It noted that housing prices had risen by 7.7% in 2020 year on year and surpassed their level in the period preceding the global financial crisis, adding that housing loans were picking up.
Given that some sectors of the economy are still strongly affected by physical distancing measures, the Council said that a premature cancellation of aid could put healthy businesses at risk and increase the credit risk, while extended maintenance of support could keep companies with unsustainable business models on the market and zombify the corporate sector, which would have adverse implications for growth and financial stability, the statement warned.
The Council said the banking sector was highly capitalised and liquid. The volume of loans covered by the loan repayment moratorium continued to fall after peaking in September 2020 and at the end of March 2021 it covered 8.6% of corporate and household loans. The loans covered by the moratorium were mostly aimed at hotels and restaurants.
The Council said that the recovery of the financial markets, which began at the end of last year, had continued in the first half of this year and that nearly all sectors supervised by HANFA were seeing growth.
The positive mood has also affected the financial services sector, whose assets at the end of March 2021 were 3.5% higher than at the end of 2020, accounting for 32.15% of the total assets of the financial system in Croatia, or 61.7% of the nominal GDP, the statement said.
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