Croatian Banks Expecting Rate Cut

Written by Andrey Bibarsov

The Croatian Banking Association expects interest rates to fall this year as the central bank has cut the banks’ asset/liability ratio from 20% to 17%, but rates are not expected to fall dramatically unless there are fiscal and structural reforms.

The body feels that these reforms are necessary in order to reduce borrowing costs and to improve the country’s risk profile.  The reduction of the asset/liability ratio released $120 billion into the banking system, which was designed to promote investment and boost the economy.

This measure reduces the regulatory cost for the banks and gives them the option of slightly easing interest rates.

Over 90% of Croatia’s banks are owned by banks in other countries including France, Italy, Hungary and Austria, and loan growth has dropped during the last two years while the percentage of bad loans has risen to more than 11% at the end of last year.

Croatia is currently rated just one place above non-investment grade and needs to introduce fiscal and structural reforms to keep this grade.  The average mortgage rate in Croatia is around 6%.

Croatia is due to complete EU entry talks this summer but it has been suggested that talks could extend into the autumn.  This is because two areas of negotiation which are the judiciary and competition policy have not yet been concluded.

Entry to the EU will undoubtedly have a positive effect for the country which is still pulling out of recession, and although GDP growth is forecast at 1.5% this year unemployment remains high.

The Prime Minister of Croatia, Jadranka Kosor, is currently meeting with the leaders of Serbia and Slovenia to discuss economic and regional cooperation between the three former Yugoslav republics, as well as the potential for joint business ventures in other markets.