Household Debt at 38 Percent of GDP

The total household debt in Croatia has continued to rise – the estimated household debt in relation to GDP increased from 35.9 percent at the end of 2005 to 38 percent at the end of June 2006, according to the latest Macroprudential Analysis from the Croatian National Bank. The average debt per employee rose from around 58 thousand kuna at the end of 2005 to around 63 thousand kuna at the end of June last year, but analysts are not currently concerned about the indicators of debt repayment burden.

The primary category of household debt remains loans from commercial banks, which account for about 96 percent of total household debt, and this, analysts from the central bank note, is a result of the continued strong growth in the supply of increasingly cheaper loans from commercial banks. According to the latest data from the Croatian National Bank, total loans to households from banks at the end of December last year amounted to 95.7 billion kuna, implying that each employed Croatian would, on average, have 67 thousand kuna in loans. Analysts from the central bank in the latest Macroprudential Analysis note that the credit indebtedness of citizens in Croatia is nearly twice as high as in most new EU member states – expressed in euros, in Croatia it amounted to 36.4 percent of GDP in mid-last year, while in comparable countries it did not exceed 19 percent of GDP.

However, analysts from the Croatian National Bank emphasize the impact of the supply of bank loans to households on such movements in the debt indicators. The Croatian banking sector has reached a certain level of market maturity and competitiveness before the banking systems of most comparable countries. With the development of their banking systems in comparable countries, similar trends could be expected, and it is estimated that in approximately five years there should no longer be a difference in the relative level of household indebtedness between Croatia and most new EU member states. Analysts from the central bank also point out that a higher share of loans to households in GDP in Croatia is accompanied by a higher share of citizen deposits in banks in GDP – in Croatia, this amounted to 43.3 percent of GDP at the end of June 2006, while in most comparable countries it ranges from 20 to 30 percent of GDP.

In addition to deposits in banks, the population in Croatia is increasingly investing in other forms of savings, such as investment funds, and is increasingly turning to housing savings banks, so analysts estimate that total household savings in Croatia could amount to around 50 percent of GDP. Aggregate indicators of the debt repayment burden of households are not currently concerning. It is estimated that the burden of repaying principal with interest in gross disposable income at the end of June 2006 should amount to 6 percent, and this indicator has been almost constant since 2003, according to the analysis. Analysts from the Croatian National Bank believe that this can be attributed to the reduction in interest rates by banks on long-term loans to households from around 12 percent at the end of 2000 to around 6.5 percent in mid-last year and the increasing supply of loans for longer terms. (H)