The amount of non-performing loans in Croatia will begin to decrease next year, as economic growth gains strength and companies and consumers become increasingly able to meet their loan repayments, said Boris Vujčić, Deputy Governor of the Croatian National Bank (HNB), in an interview with Bloomberg agency.
"The deterioration of banks’ loan portfolios is likely to peak within a year, as we can expect economic growth again next year," Vujčić said. "Bad loans should gradually start to decrease. Once credit activity resumes, when the economy grows, not only does loan collection improve and the number of bad loans decrease, but the number of new loans also increases, thus reducing the share of bad loans in total loans," Vujčić noted. However, the share of non-performing loans in the banking system will continue to rise this year as the outlook for the Croatian economy remains ‘bleak’, Vujčić stated on Thursday in his office in Zagreb.
As he pointed out, the gross domestic product (GDP) is likely to grow by 0.3 percent in 2010, after falling by 5.8 percent last year. The profits of banks in Croatia, such as Zagrebačka and Privredna banka, fell by a third last year, while the use of reserves to cover potential bad loans has more than tripled, according to HNB data. Vujčić also mentioned that the capital adequacy ratio of Croatian banks was 16 percent at the end of last year. This year it has exceeded 20 percent, after new banking regulations known as Basel II were adopted. "This is a solid buffer for banks if there is further deterioration in the loan portfolio. Banks are still making profits and have a high capital adequacy ratio, so the buffer is quite substantial," Vujčić assessed.
