PBZ: Recovery of Credit Quality for the Fourth Consecutive Quarter

In the second quarter of this year, a further decrease in the share of so-called bad loans in the total loans of domestic banks was recorded, by 1.1 percentage points, to 15 percent, marking the fourth consecutive quarter of recovery in credit quality in Croatia, analysts from Privredna banka Zagreb (PBZ) emphasize.

The latest data from the Croatian National Bank (HNB) shows that the share of partially recoverable and completely unrecoverable loans in total loans has decreased by 0.3, 0.4, and 0.5 percentage points in the previous three quarters, while the second quarter of this year brought a significantly stronger decrease – by 1.1 percentage points.

As a result, the share of non-performing loans in total credit placements has dropped to 15 percent. In the private sector, this decrease is even more pronounced; it amounts to 1.6 percentage points, to 19.3 percent.

PBZ points out that, as before, this is primarily due to increased activity in the sale and write-off of placements, especially in the corporate sector, which has caused the share of loans to non-financial companies to fall by 2.5 percentage points to 30 percent, and in loans to households by 0.8 percentage points, to 11.2 percent.

When observing loans to households by purpose, a quarterly decline in the share of ‘bad’ placements is recorded for housing loans by 1 percentage point, to 8.8 percent, for credit cards by 0.5 percentage points to 6.3 percent, and for cash loans by 0.4 percentage points to 11.7 percent, while the decline in overdrafts and loans for other purposes amounted to 0.2 percentage points each, to 3.5 and 8.4 percent.

The division of housing loans by currency shows that the share of problematic loans has significantly decreased for loans granted in kuna, by 2.2 percentage points to 5.9 percent, due to, as PBZ states, the rapid growth of the portfolio of housing loans in kuna caused by the refinancing of other loans, especially those related to ‘Swiss francs’.

This is most evident in the data regarding these loans – the share of ‘bad’ loans in housing loans linked to the Swiss franc reached a high of 63.4 percent, as predominantly problematic placements remained in the portfolio after the conversion, PBZ analysts note.

A slight decline, of 0.2 percentage points, to 6.7 percent, is also recorded in the second quarter for the share of bad loans in total housing loans linked to the euro.

PBZ also emphasizes that, along with the reduction in the share of bad loans in bank balances, the system has been further strengthened by their increased coverage with reserves.

The total coverage of non-performing loans with value adjustments has continued to rise, reaching 59.7 percent at the end of the second quarter, which is an increase of 1.3 percentage points compared to the first quarter. At the same time, the coverage of loans to non-financial companies at the end of June was 58.2 percent, which is an increase of 1.4 percentage points on a quarterly basis, while in the case of loans to households, the ratio reached 62.7 percent, representing an increase of 1.2 percentage points.