The growth of new healthy loans, portfolio sales, and economic recovery have helped to negate the negative impact of Agrokor and related suppliers on credit quality indicators, according to analysts from the Croatian Banking Association in the latest quarterly analysis of trends in Croatian banking – HUB Review.
According to data from this publication released on Tuesday, the ratio of non-performing loans decreased from 13.9 percent at the end of the first quarter to 13.2 percent at the end of the second quarter of this year, and the coverage ratio of non-performing loans with value adjustments decreased from 64.2 to 60.5 percent in the second quarter.
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HUB analysts also emphasize that Croatia is no longer among the EU countries experiencing significant credit declines.
– The recovery of loans in Croatia has continued according to data up to July. Loan balances still do not reflect the true picture due to portfolio sales. Transaction data indicate stable growth in loans to households, and data on newly approved loans indicate stable growth in loans to businesses. According to comparable data from the European Central Bank, Croatia is no longer among the countries that record significant declines in both loan portfolios, the authors of the publication emphasize.
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They also highlight that banks in Croatia have sufficient capital to support the continuation and acceleration of the lending process.
– The capital adequacy ratio has reached a historical maximum of 23.2 percent. The Croatian banking system is among the most stable in the world according to this criterion. The accounting ratio of capital to assets, which significantly exceeds 14 percent and is also at a historical maximum, shows the same stable situation. These are important data in light of the crisis at Agrokor and the unexpected need for additional provisions for bad loans, the authors of the HUB Review emphasize.
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They note that the significant increase in provisioning costs in the second quarter of this year compared to the same period last year led to a decline in the quarterly gross profit of the system by about 60 percent. Despite this, the business result remains positive. The twelve-month moving average return on equity remains a solid 5.5 percent, the analysis states.
According to data from the Croatian National Bank published at the end of August, banks in Croatia achieved a pre-tax profit of 1.24 billion kuna in the first half of this year, which is almost 65 percent less than in the same period last year.
HUB analysts also observe that the country’s risk premium has significantly decreased this year. Although it is still slightly higher than in comparable Central European countries, Croatia recorded the largest decrease in 2016, by more than one percentage point, the publication states.
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According to HUB data, the average interest rate on newly approved housing loans has continued to hover around 4 percent. In the EU, Bulgaria, Lithuania, and Hungary have higher or equal interest rates compared to Croatia, while other countries have lower rates. Interest rates on consumer loans remain among the lowest in the Union, while interest rates on framework loans are approximately between the upper and lower bounds of the interest rate range in the euro area. For long-term loans to companies, a noticeable trend of decreasing interest rates continues, HUB analysts claim in the publication.
– Data on the movement of non-performing loans, in conjunction with very high capital adequacy and the recovery of lending, show a lasting ability to meet the demand for loans, although Croatia positions itself very high in international comparisons regarding the ratio of non-performing loans, between Bulgaria and Ireland. Such a high ratio is associated with the legacy problem – the weakness of institutions that regulate collection procedures and resolve issues of over-indebted companies, as well as an underdeveloped capital market. The risks associated with this continue to hinder faster growth, emphasizes HUB director Zdenko Adrović in the conclusions of the analysis.
