Croatian banks recorded an 18.5 percent increase in profit in the first half of 2022 compared to last year

In the first half of 2022, the results of banks continued to improve in line with the general trend of economic recovery, which grew at a rate of 7.7 percent compared to the second quarter of 2021, or at a seasonally adjusted rate of 2.0 percent compared to the first quarter of this year.

According to the statement from the Croatian Banking Association, the banks’ profit before tax for the first half of 2022, based on the non-consolidated quarterly statistical report of the Croatian National Bank, amounted to 3.6 billion kuna, which is 18.5 percent higher than in the same period of 2021. Interest income decreased in line with the continued general trend of interest rates by 176 million kuna or 3.2 percent. As the room for reducing interest expenses is minimal, as interest rates are close to zero, net interest income recorded a decline of 142 million kuna or 2.9 percent.

Net dividend income increased by 176 million kuna or 76 percent. Net income from fees and commissions increased by 306 million kuna or 18.6 percent. When other less significant sources of financial income and expenses are added, net income from operating activities increased from about 7.5 to 7.8 billion kuna or 3.4 percent, which is significantly slower than the growth of gross value added in the economy, which increased at a rate of 8.8 percent in the second quarter.

At the same time, operating (administrative) expenses increased by about 210 million kuna or 6.6 percent. With the increase in allocations for restructuring and deposit insurance funds, current expenses almost entirely negate the effect of the growth in net income from operations, and the net operating income of banks compared to the first half of 2021 remained approximately the same (a change of only 12 million kuna).

Therefore, the increase in gross profit of about 536 million kuna can be entirely explained by the impact of provisions and impairments, whose net effect this year was minimal, while last year it still significantly burdened the result with almost 600 million kuna that banks had to allocate for these purposes, the statement said.

In line with the noticeable economic recovery and relief from provisioning and impairment costs, there is a visible improvement in collectability across all loan portfolios. The share of non-performing loans in total loans to non-financial companies as of June 30, 2022, was 7.79 percent, which is about 1 percentage point lower than at the end of March and significantly lower than the 11.60 percent ratio at the same time in 2021.

In the household sector, improvement is also present, although it is less pronounced as the initial level was lower: at the end of June this year, the ratio was 6.09 percent compared to 6.43 percent in the previous quarter and 7.14 percent in the same quarter of the previous year.