The Number of Banks Operating at a Loss Increased to One Third

The economic crisis was reflected in the slowdown of business activities and the weakening of the financial results of banks in the first half of 2012, according to the latest Bulletin of the Croatian National Bank (HNB).

The profitability of operations decreased, although it can still be considered satisfactory, and the level and quality of capital have further strengthened. However, the performance indicators of individual institutions indicate a significant heterogeneity within the system. Thus, the number of banks operating at a loss has increased to one third of the total number of banks, all of which were from the group of small banks, as emphasized by the HNB.

In the first half of 2012, the assets of banks decreased by one percent, thus breaking the trend of slight growth from the previous two years. Loans granted stagnated, despite a series of measures taken by the HNB aimed at encouraging more favorable lending to the economy. Regulatory changes, particularly those related to foreign currency liquidity and mandatory reserves, resulted in the release of a significant amount of previously immobilized funds and noticeably lower regulatory costs. However, the high level of caution present among banks and their clients was the reason for the lack of significant effects of regulatory measures on credit growth.

In conditions of good liquidity in the system and weak demand for loans, part of the released liquid funds was used to repay obligations, especially foreign ones. The greatest impact on these movements was the reduction of sources from majority foreign owners, which was relatively slight. On the side of domestic sources, further depletion of the liquidity position among trading companies was evident in the sharp decline in deposits with banks, while deposits from all other domestic sectors increased. Meanwhile, the growth of household deposits continued at a slowed pace, and deposits from financial institutions, particularly investment funds, increased significantly, as they sought refuge in stable and attractively yielding bank deposits, especially in kuna. The liquidity surpluses that banks exhibit in stressful circumstances, along with the level of investment in securities, indicate a satisfactory accumulation of liquidity that could, through the implementation of measures for economic recovery, be transformed into credit growth in the upcoming period.