Banks in 2015 with a loss of 4.3 billion HRK; share of bad loans 16.6 percent

Banks in Croatia operated with a loss of 4.3 billion kuna last year, reduced credit placements by 2.3 percent, while the share of bad loans at the end of the year amounted to 16.6 percent, according to data published in the latest analysis by the Croatian Banking Association (HUB).

After stabilizing profits at approximately two billion kuna annually during 2014 and the first two quarters of 2015, significant losses occurred in the third and fourth quarters as a result of costs related to the conversion of loans in Swiss francs. At the end of 2015, the annual loss of the banking system amounted to 4.3 billion kuna, as stated in the latest HUB Review.

The capital adequacy ratio, after reaching a maximum of 22.3 percent in the second quarter of 2015, fell to 19.9 percent in the third quarter due to costs related to the conversion of loans in Swiss francs. In the last quarter of 2015, the capital adequacy ratio slightly increased again to a level of 20.7 percent, according to the analysis.

The capital adequacy ratio of Croatian banks is one of the highest among European countries reporting to the IMF within the Financial Soundness Indicators database.

“Despite the increase in capital adequacy, Croatia recorded a drop in the ranking due to the increase in capital adequacy in banks in Sweden and Bulgaria. When comparing data for the third quarter, which will include losses due to conversion, Croatia will record a drop in the ranking of approximately four places,” HUB stated.

Total credit placements down by 5.4 billion

Total placements of credit institutions at the end of 2015 were 2.3 percent lower compared to the end of 2014, which in nominal amounts represents a decrease of 5.4 billion kuna.

The stronger decline in placements than in previous years at this time can largely be explained by direct and indirect costs related to the conversion of loans in Swiss francs, HUB stated.

In January 2016, the decline in placements accelerated, with a year-on-year decline rate of 3.7 percent.

At the same time, placements to companies recorded a year-on-year decline throughout the past year. Negative trends continued at the beginning of 2016, when loans to companies were 5.1 percent lower compared to the previous year. Croatia ranked 9th among EU countries in terms of annual decline in loans to companies, between Portugal and Greece. The largest decline in loans to companies was recorded in Ireland, Malta, and Hungary, while 11 EU member states achieved growth in loans.

Lending to the household sector recorded positive growth rates in the first half of 2015, mainly due to exchange rate differences, but from July there was a decline in this sector as well, followed by conversion, so in January 2016 a decline of 5.7 percent year-on-year was recorded. In this regard, Croatia is among the countries with the largest decline in loans among EU members, behind Hungary.

“Although changes mainly occur due to exchange rate changes and conversions, it can be concluded that real credit activity in the household sector shows no signs of recovery,” HUB’s analyses state.

In the fourth quarter of last year, there was a further reduction in the share of bad loans in total loans, and the overall ratio of bad loans reached a level of 16.6 percent. “The movements can be explained by a slight decrease in the ratio of bad loans in the corporate sector,” HUB noted.