Dramatic Decline in Bank Loan Values – 16 Billion Kuna Less in February Compared to the Previous Year

According to data from the Croatian National Bank (HNB), the kuna equivalent of total loans disbursed at the end of February 2016 amounted to 270.1 billion kuna, which is 16 billion kuna less than a year earlier, a consequence of the continued process of deleveraging of households and businesses and a decline in the state’s credit indebtedness.

The value of total loans compared to January is lower by 2.1 billion kuna or 0.8 percent, while compared to February 2015, it is lower by almost 16 billion kuna or 5.6 percent.

“The reason for the stronger annual decline in total loans is due to the conversion and partial write-off of loans in Swiss francs, most notably visible in the annual decline in the value of housing loans in the household sector, the continuation of the deleveraging process in the household sector, and reduced demand from businesses in the domestic market, which are taking advantage of more favorable conditions and are partly borrowing in the foreign market,” analysts from Raiffeisenbank Austria (RBA) state.

The decline in total loans on an annual basis in February was contributed by a drop in foreign currency loans, while pure kuna loans recorded growth.

Kuna loans thus amounted to almost 80 billion kuna at the end of February, with a monthly increase of 1.8 percent. Compared to the same month in 2015, pure kuna loans increased by 2.4 billion kuna or 3.1 percent, continuing the trend of annual growth rates since October 2014, according to RBA.

On the other hand, foreign currency loans at the end of February amounted to 190.1 billion kuna, with a monthly decrease of 3.5 billion kuna or 1.8 percent. Compared to February 2015, foreign currency loans are lower by more than 18.4 billion kuna or 8.8 percent, continuing the trend of annual decline that has been ongoing with several interruptions since September 2012.

“Considering that at the end of February over 70 percent of total loans were related to loans denominated in foreign currency and those tied to a currency clause, the annual decline in loans expressed in kuna was partially supported by the strengthening of the domestic currency against the euro and the Swiss franc, by 0.9 percent and 3.2 percent respectively,” RBA states.

Continuation of Deleveraging in Dominant Sectors

Loans to the corporate sector amounted to 89 billion kuna at the end of February, with a monthly increase of 1.4 billion kuna or 1.56 percent. This monthly growth is predominantly due to an increase in short-term borrowing, up to one year. However, on an annual basis, loans to businesses recorded a decline of 4.4 billion kuna or 4.7 percent, continuing the trend of annual deleveraging that began in mid-2012, RBA emphasizes.

Loans to households, with a share of over 44 percent of total loans, amounted to 119.8 billion kuna at the end of February, with a monthly decrease of 2.2 billion kuna or 1.8 percent. On an annual basis, however, they fell by more than 8.7 billion kuna or 6.8 percent, continuing the annual deleveraging process that started in July 2015.

“The decline in loans to the household sector, along with the continuation of the deleveraging process, is partly a consequence of the conversion and partial write-off of loans in Swiss francs, particularly focusing on housing loans that began in December last year and continued at the beginning of this year. Namely, housing loans recorded a monthly and annual decline of 4.1 percent and 12.6 percent respectively, amounting to 54.6 billion kuna at the end of February,” RBA states.

Housing loans tied to Swiss francs recorded a decline of 12.5 billion kuna or 70.7 percent compared to December 2015, alongside a simultaneous increase in housing loans tied to euros by 7.6 billion kuna or 21.1 percent.

At the same time, loans to the central government at the end of February decreased by 870 million kuna or 1.6 percent, down to 52.6 billion kuna. Compared to February 2015, a decline in the central government’s credit indebtedness of 2.3 billion kuna or 4.1 percent was recorded.

“Given the still unfavorable developments in the labor market, we do not expect a significant recovery in household sector lending this year, and the completion of the deleveraging process can only be expected with the beginning of the employment growth cycle. At the same time, the credit demand from the corporate sector in the domestic market remains limited by weak economic activity, as well as the possibilities of more favorable borrowing in the foreign market,” RBA concludes.