Vujčić: Today it is dangerous for bankers to walk the streets

Through long-term structural reforms, Croatia should have acted earlier, although some positive shifts can already be seen today in the segments of restructuring public enterprises and attracting foreign investors.

This was stated by Boris Vujčić, the governor of the Croatian National Bank (HNB), who does not feel that he is exposed to political pressures. A significantly larger problem is the misunderstanding of the mandate and scope of the central bank. It is impossible, he says, for the HNB to hit three targets with one instrument, and this is important to explain and constantly repeat. Vujčić vividly described expectations from central banks with three laws of science fiction by Isaac Asimov, in which the role of the HNB can be equated with that of robots.

Vujčić also spoke about commercial banks, which are still reluctant to give loans: -Before the crisis, loans were growing very quickly, some companies and households became over-indebted, and now unpaid receivables have jumped to 14 percent. On one hand, demand for loans has also fallen, and those who would like to take loans do not have collateral or capital. Companies in Croatia did not take advantage of the favorable period before the crisis when they could raise money very cheaply in the capital market. Part of the problem lies with banks that have access to risk that is not good. Once we had to limit banks in lending, today we have a completely different extreme where it is dangerous for bankers to walk the streets. We have also tried to break the aversion to risk through credit packages with HBOR, which was not unsuccessful, and a third, slightly modified tranche of loans will soon be launched. This alone will not solve the problem if serious reforms and attracting foreign investors are not approached – he explained.

Regarding the macroeconomic situation in Croatia, Vujčić outlines that since the beginning of the crisis, i.e., the last quarter of 2008, there has been a slight surplus in the balance of payments, but this is a result of the contraction of imports, not an increase in exports. However, he is encouraged by indicators such as a slight recovery in loans and investments, but at the same time, household demand is still too low.

Radomir Božić, the vice-governor of the Central Bank of Bosnia and Herzegovina, believes that in the context of the current economic crisis, problems and solutions should not be sought only through the prism of monetary policy but also through legacy. Legacy in this case means a series of poorly executed transitions that have practically abolished industry and exports. There can be no exports without competitiveness, which needs to be worked on at the regional level. A burning problem at this moment, Božić believes, is also the insufficient placements of commercial banks, which have money but have no interest in turning it into loans and offering it to the real sector.

Dimitar Bogov, the governor of the National Bank of Macedonia, claims that monetary policy does not always yield satisfactory results due to a poor transmission mechanism. Therefore, sometimes it is necessary to resort to unconventional measures. Bogov is considering several such measures as they have reached the end of the interest rate mechanism.

– Savings in domestic currency are being exhausted, so we are thinking about everything, but we must be cautious and ask ourselves whether excessive strain on monetary policy will bring us problems in the future – asks Bogov.

There is also great pressure on the governor of the Central Bank of Montenegro, Milojko Dakić. – We have a big problem of illiquidity in the real sector and excessive liquidity in the financial sector. Banks have become very cautious and do not show enough understanding for the economy. At the same time, the pressure on banks to lend to anyone is counterproductive – says Dakić.

The Bank of Slovenia is completely independent regarding policies and instruments and fully achieves the goals set by the European Central Bank (ECB). ‘We can, if necessary, invent instruments that will maintain price stability. The ECB has been very successful in this, having surpassed even the Bundesbank in recent years, said Marko Kranjec, the governor of the Bank of Slovenia.

In addition, the ECB has a number of long-term refinancing instruments, moving far away from the role of a lender of last resort. There is also a wide range of collateral acceptable to the central bank – with the crisis, collateral has become not only government bonds but also corporate bonds, and there is consideration to recognize that status for ordinary loans as well. There have also been discussions about negative interest rates, but they are mainly used to influence the exchange rate, which is less relevant to the ECB.

Kranjec finds the causes of the poor functioning of the transmission mechanism in balance sheet recession, i.e., excessive growth of public debt, which is why fiscal policy cannot effectively support economic growth. Today, positive balances of current accounts, growth in personal and corporate savings, and huge budget deficits are mainly recorded. This trend will continue and will be very difficult to reverse until investments begin and structural changes occur.

– Since the beginning of the nineties, we have not looked enough at the capital strength of companies. Slovenian companies cannot repay debts. Now we have a dilemma – banks must function, and corporate debts must be repaid. Banks want to reduce indebtedness and clean up their balance sheets, and the role of monetary policy in this process is secondary. Due to inflated balance sheets and debts, the crisis will last much longer on a global level than we think – concluded Kranjec.