Central bank governor says situation with bad loans improving

Croatia's banking system is stable and the situation concerning non-performing loans (NPL) is improving, Croatian National Bank Governor (HNB) Boris Vujcic said at a meeting of central bank governors from Croatia, Slovenia, Macedonia, Montenegro, Bosnia and Herzegovina and the Cezch Republic in the northern coastal town of Rovinj on Friday.

"As far as the dynamics of NPLs is concerned, the situation is improving even if the situation with the Swiss franc is taken into account. In 2014 banks wrote off one billion kuna in receivables whereas in 2015 they wrote off three billion kuna related to bad loans. The demand for recovering those receivables has grown and companies that provide such services in the European Union are turning increasingly to smaller markets like Croatia. In 2016 new amounts are being prepared to be written off... and the situation could be even better, depending on the legal and regulatory framework, but we are still waiting for that," Vujcic said at the event, organised by the Lider business weekly.

Vujcic presented the HNB's position that foreign currency exposures of banks in Croatia should be treated the same as kuna bonds. That means that they should not be subject to risk weights and limitations to large exposures which will apply as of 1 January 2018 to foreign currency exposures in the European Union.

Vujcic announced that he would soon conduct talks with European Commission officials with the aim of obtaining final confirmation of the HNB's interpretation.

Vujcic underscored that the system of insuring deposits in Croatia was entirely in accordance with EU requirements and announced that the State Agency for Deposit Insurance and Bank Resolution (DAB) would as of 1 June introduce the payment of insurance premiums based on the risk of an individual bank.

Vujcic warned that "sometimes it is forgotten that financial stability is not guaranteed and that it needs to be fought for with proper policies." "What is most important for our citizens is that during this years-long crisis and the recession that lasted six years, they did not have to pay for the costs of rehabilitating the banking system. Croatia is one of the few EU member states that did not experience a banking crisis," he said and added that it was important for citizens to have trust in the banking system.

Asked about the possible introduction of the euro currency in Croatia, Vujcic reiterated that the level of euroisation in Croatia was so high that in fact the risk to financial stability posed by sudden changes to the exchange rate was such that it did not allow any sudden changes to the exchange rate.

"That does not necessarily mean that we have a fixed exchange rate, however, significant changes to the exchange rate of, say, 20 percent could have a negative effect on financial stability as loans in most sectors are indexed to the euro," Vujcic underscored.

Only when Croatia proves, he added, "that it is in a position to sustainably reduce the share of public debt in the Gross Domestic Product (GDP), will it be able to launch talks about entering the currency mechanism and subsequently the euro zone."

This year's meeting of bank governors was opened by Czech central bank governor Miroslav Singer, who said that the country's stable economic growth rested on fiscal discipline, the strong absorption of EU funds and growing personal consumption.

Last update: Fri, 01/04/2016 - 17:57

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