HNB: Bank interest rates in Croatia continued to rise in February

The Croatian National Bank (HNB) stated in its new monthly Bulletin that the transmission of the increase in key interest rates by the European Central Bank (ECB) to financing conditions in Croatia continued in February, resulting in an overall increase in bank interest rates.

They report that the average interest rate on newly contracted loans to non-financial enterprises reached 3.7 percent in February, which is 53 basis points higher than in January. They also note that despite the rise in interest rates, the growth of loans to enterprises continued at 20.1 percent year-on-year.

For households, a slight increase in lending was recorded simultaneously, with almost unchanged interest rates – the average interest rate on newly contracted housing loans remained at January’s level of 2.9 percent, while the rate on cash non-purpose loans slightly increased to 5.6 percent.

– A stronger growth of housing loans can be expected in the coming months, following the implementation of a new round of subsidized housing loans starting in mid-March. At the same time, interest rates should not rise significantly as subsidized housing loans are contracted at lower rates than market averages – they estimate at HNB.

Indicators of interest rates from credit institutions for the most important types of loans granted to households and non-financial enterprises mostly show a growth trend since the second half of 2022.

It is worth noting that in an effort to curb inflation, the ECB’s Governing Council raised key interest rates by another 50 basis points in mid-March, despite increasing uncertainty in financial markets. Thus, the currently most important ECB interest rate, for cash deposits of credit institutions with the central bank, has been set at three percent since March.

This increase is also reflected in the domestic financial market, where since the beginning of the cycle of increasing key ECB interest rates, which started in July last year, the average interest rate on newly contracted loans to non-financial enterprises has increased by 200 basis points.

Interest rate growth on term deposits

For term deposits, the interest rate at which enterprises deposited their funds was 15 basis points higher in February than in January (1.6 percent), contributing to the continued shift of funds from overnight to term deposits, according to the central bank.

For households, they add, the subscription of government bonds, which amounted to about one billion euros by the end of February, affected a significant drop in deposits. Meanwhile, the average interest rate on newly contracted term deposits in February reached 0.5 percent, which is 30 basis points higher than in January.