Household Loans Increased by 3.5 Percent in May, Reaching 121 Billion Kuna

In May, household loans exceeded 121 billion kuna, which is 3.5 percent higher than in May of last year, marking the highest level since January 2016.

Compared to the state of household loans at the end of April, a monthly increase of 0.7% or an increase of 795.3 million kuna was recorded. Observed over the past year, positive growth rates have continued for the ninth consecutive month, according to a new macroeconomic analysis by RBA.

The year-on-year growth of 3.5% in May is the highest rate since data has been available in 2011, indicating a gradual recovery in credit activity. Loans to the household sector confirm a somewhat more pronounced credit activity as, with a monthly growth of 0.9%, loans to households accelerated their annual growth to 5.3%.

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When observing the currency structure of the household sector’s credit obligations, it is evident that more obligations are being redirected from foreign currencies to kuna, reflecting a stronger preference for borrowing in the domestic currency, which has certainly been aided by the decline in interest rates. Thus, the share of kuna loans in total household loans has increased by 6 percentage points over the past year, with the ratio of kuna loans to foreign currency loans equalizing at 50:50 in April and May.

The state of kuna loans continued to increase both monthly and annually, with the value exceeding 61 billion kuna, along with a monthly growth of 1.7%. Year-on-year, solid double-digit growth rates of +16% have continued. While the positive trend of annual growth in kuna loans has been ongoing since the first half of 2013, negative annual growth rates for foreign currency loans began back in 2012. At the end of May, the nominal amount of foreign currency loans amounted to 60.1 billion kuna, representing a year-on-year decline of 4.4 billion kuna or 6.9%, and a monthly decrease of -0.4%.

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When observed by types of loans granted to households, the most significant share, over 43%, relates to housing loans, which, despite stagnation on a monthly basis, recorded an annual growth of 2%, reaching 52.6 billion kuna. Although modest, this continues the positive annual growth rates for the sixth consecutive month, while the dynamics of accelerating growth have been present for the last four months. Within this category of loans to households, a trend of changing currency structure is also visible. Specifically, there is a noticeable trend of growth in kuna loans, which reached 14.7 billion kuna at the end of May, recording a monthly growth of 0.9% and an annual growth of 25.8%. The share of kuna loans in total housing loans has increased to 28%, which is 5.3 percentage points in just one year. At the same time, the share of kuna loans with a currency clause, primarily loans tied to the euro, decreased from 77.3% to 72%, with their amount dropping to 37.8 billion kuna.

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Cash non-purpose loans, with a share of 37.4% in total household loans, in May exceeded 45 billion kuna for the first time, with a monthly and annual growth of 1.3% and 9.5%, respectively. In cash non-purpose loans, there is also a trend of increasing the share of kuna loans compared to those kuna loans with a currency clause. At the end of the observed month, the share of kuna loans in total cash non-purpose loans reached 70%.

Although positive annual growth rates in total household loans indicate a recovery in household credit activity, according to our expectations, growth should be moderate, especially considering the overall indebtedness of the sector and structural weaknesses in the labor market, conclude RBA analysts.