Interest Rates on Savings in January Were Significantly Higher Than Last Year

Statistical indicators of interest rates from credit institutions for the main sources of their euro funds recorded a decline in the quarterly period ending in January 2024, but continue to show an upward trend on an annual basis, according to a statement from the Croatian National Bank.

Additionally, interest rates for the most important types of euro loans granted to households and non-financial companies generally show a trend of growth since mid-2022, with the exception of loans granted via credit cards, where the long-term trend of decreasing average interest rates continues, as stated in the new HNB Statistical Release on interest rates from credit institutions for January 2024.

The average interest rates on time deposits of households in January 2024 were significantly higher compared to their values from January 2023, amounting to 2.25 percent for short-term and 1.62 percent for long-term deposits. This represents an increase of 2.12 and 1.47 percentage points over the past year, for short and long terms, respectively.

For the main categories of loans granted to households in January 2024, the highest average interest rate was recorded for non-purpose and other loans, amounting to 6.12 percent. The lowest average interest rate was 3.64 percent, relating to housing loans, continuing the trend of its growth. For loans based on overdrafts on transaction accounts, the average interest rate was 5.77 percent, while for credit card loans, the average interest rate in the same month was 4.58 percent.

For the main categories of loans granted to non-financial companies in January 2024, the average interest rate was 4.99 percent for short-term loans and 5.18 percent for long-term loans. On a quarterly basis, there is an increase of 0.12 percentage points for short-term and a decrease of 0.24 percentage points for long-term loans. On the other hand, on an annual basis, interest rates for both categories are rising, by 2.15 percentage points for short-term and 1.28 percentage points for long-term loans.

As we recently wrote, the strong increase in interest rates on time deposits of the population began to affect the profitability of banks at the end of the third quarter of 2023. Interest rates on time deposits of the population began to rise more sharply from September 2023, with a time lag compared to the rates on time deposits of companies, which had already risen sharply in the first half of last year. The authors of the analysis titled ‘Grains of Sand Create Mountains – How the Rise in Deposit Rates Affects Bank Profitability?’ published on HNBlog by Mate Rosan, senior advisor, and Bono Beriša, expert associate, both from the Directorate for Macroprudential Policy and Financial Stability of the Croatian National Bank, believe that two reasons contributed to the increase in savings interest rates: the issuance of government bonds and treasury bills, and the efforts of certain banks to increase market shares.

Despite the visible increase in interest rates on new time deposits, the interest costs for banks have only slightly increased so far, as the interest rates on overnight deposits remain very low, while the shares of time deposits in total deposits are still relatively low compared to the highest recorded levels, emphasize Rosan and Beriša.

– Specifically, the share of time deposits in total deposits of companies increased last year from 6.8 percent to 23.9 percent, which is still significantly below the level that this share recorded during the period of high deposit rates ten years ago. On the other hand, the share of time deposits in total deposits of households has only recently begun to rise slightly and reached 27 percent at the end of last year, thus beginning to close the gap towards the maximum of 80 percent recorded in the first half of the last decade – claim the authors of the analysis.

In their opinion, the intensity of profit reduction due to higher interest costs will largely depend on the speed of the shift of savings from overnight to time deposits. However, in the previous decade, the banking system recorded exclusively the opposite process, namely a decrease in the share of time deposits in total deposits under the influence of falling interest rates.