Mandatory reserve reduced from 14 to 13 percent

The Council of the Croatian National Bank has decided to reduce the mandatory reserve rate for banks from 14 to 13 percent, thereby releasing approximately 2.9 billion kuna of additional liquidity to banks, as reported today by the CNB, emphasizing that this decision was made to encourage economic recovery through more generous and favorable loans.

"In order to stimulate economic recovery with more generous and favorable loans for projects that contribute to healthy growth, rational employment, and improvement of the balance of payments, the Council of the CNB decided at today's meeting to reduce the mandatory reserve rate for banks from 14 to 13 percent," the CNB stated. The new rate will be applied in the next calculation, which is due in a week. This decision releases approximately 2.9 billion kuna of additional liquidity to commercial banks (about 2.4 billion in kuna and half a billion kuna in the foreign currency part of the reserve), što increases their lending potential and reduces their unit operating costs.

Banks would use these funds in conjunction with the Croatian Bank for Reconstruction and Development, which will also take on part of the risk for joint loan placements, according to the criteria set by the Government of the Republic of Croatia. Given that the banking system already has around 5 billion kuna of free liquidity, it is estimated that there is enough money to initiate economic recovery, as stated in the press release from the CNB Council meeting. The ultimate goal of this entire project should be to stimulate lending activity for healthy companies.

"If it turns out that the funds are indeed used in accordance with the proclaimed goals, the central bank is also ready for further reductions in the mandatory reserve rate. However, if the funds released by today's decision are not used as intended, but rather for re-stimulating the import of consumer goods or for investing in foreign currencies, thereby causing destabilization of the exchange rate, the Croatian National Bank will act with all available measures, including liquidity management, to preserve macroeconomic stability," the CNB emphasized.

Considering current developments in the financial and real sectors, Council members paid particular attention to the performance indicators of banks, which, according to preliminary unaudited data, achieved a pre-tax profit of 3.4 billion kuna last year, which is a quarter less than the previous year, while reservation costs increased by about 2.3 billion kuna. Problematic loans nearly doubled over the year and amounted to more than 7.6 percent at the end of December. Overdue receivables exceeding 90 days surpassed 20 billion kuna, which is an increase of about one billion just in the last quarter, and one-third of loans recorded delays in repayment, from one day or more, as stated in the press release.

It is also noted that out of a total of 39 banks and savings banks, according to preliminary unaudited data, nine reported losses in operations, while there were five such cases in the previous year. The average capital adequacy ratio remains relatively high at 15.7 percent. According to the assessment of the CNB Council members, these data show that the banking system has managed to maintain stability, but also that its results are closely linked to developments in the real sector. Moreover, banks should make a concrete contribution to initiating a longer-term economic recovery, rather than focusing solely on their partial, short-term interests, expressed in charging higher interest rates on all types of placements, as emphasized in the press release. The CNB Council also agreed at today's meeting with the proposal of the Supervisory Board of Štedbanka d.d., Zagreb, to appoint Krešimir Starčević as a member of the management board. (H)