Tamara Perko: Corporate debt below EU average, time for an investment cycle

There is additional room for borrowing by Croatian companies to further grow the economy, said Tamara Perko, director of the Croatian Banking Association (HUB), on Monday, emphasizing that larger investments in high-productivity activities are a prerequisite for continuing convergence towards the EU average.

Perko made this statement at the Zagreb Financial Forum organized by Poslovni dnevnik, while also presenting the HUB analysis ‘Deleveraged: Perspectives on Corporate Lending in Croatia’ published today.

The analysis showed that Croatian companies are liquid and stable and that they have deleveraged in the recent period, meaning their level of indebtedness is currently below the European average. This indicates that they have room for further borrowing, and a positive circumstance is that interest rates have started to decline, which is most felt in the corporate sector, Perko noted, adding that ‘bad’ loans are at record low levels.

All of this indicates that there are ‘very good preconditions’ for companies to start their investment cycle, Perko assessed, noting that borrowing for investments and economic growth are closely linked in terms of strengthening.

‘Companies at the European top in terms of interest rate competitiveness’

Moreover, according to Perko, Croatian companies, on average, have the fourth lowest interest rates on loans in Europe, with an average borrowing rate of 4.8 percent. ‘This is very low and effectively places us at the European top in terms of interest rate competitiveness,’ Perko noted.

She also stated that further strengthening of Croatian economic growth is ‘definitely necessary’ to reach higher standards for Croatian citizens. The current GDP per capita in Croatia is 76 percent of the EU average, and Perko believes that with further economic growth, it is unquestionable that it will soon reach 80 percent. ‘However, taking the ‘next step’ will certainly require larger investments, particularly in high-productivity activities,’ she assessed.

Perko highlighted that investments in Croatia are relatively low, below the EU level, which significantly lags behind the U.S. Therefore, given the relatively low indebtedness, there is room for recovery of corporate investments aimed at sustainably and rapidly increasing productivity.

– Accelerating private corporate investments in technological and innovative changes that significantly raise productivity is a necessary condition for continuing rapid convergence towards the EU average – Perko stated.

Milder transfer of falling interest rates

When it comes to loans for citizens, Perko reminded that during the phase of rising interest rates, this transfer in Croatia was milder than elsewhere, and now, when the cycle of falling interest rates has begun, a milder transfer can be expected with a certain time lag.

It is also important what interest rates are contracted, so citizens with fixed-rate loans will not experience any changes, while those with variable interest rates will depend on the specific interest rate they contracted, she said.

Currently, the average interest rate on housing loans is around 3.7 percent, which is about the European average, while interest rates on consumer loans in Croatia range between five and six percent.

‘Banks had to start increasing fees this year’

The Croatian National Bank (HNB) has given banks a deadline until the end of the year to develop and present a methodology for changing the amounts of bank fees, and Perko stated that a reduction in the number of these fees can be expected. ‘The HNB will, of course, have transparent insight into all aspects and variables determining each type of fee,’ she said.

Considering that one bank has already announced an increase in fee prices, a journalist asked Perko whether there might be a reduction in the number of fees on one hand, but an increase in the prices of the remaining ones on the other. She replied that the announced abolition of fees for basic accounts has nothing to do with the increase in fees by one bank.

‘Proof of this is the fact that other banks have already started raising their fees at the beginning of this year and throughout this year after a long period without any fee increases,’ Perko stated, listing some reasons for raising these fees, such as inflation and rising costs, for example, transport, postal services, energy…

Banks simply had to decide to start increasing fees this year,’ Perko stated.

Let us recall, Deputy Prime Minister and Minister of Finance Marko Primorac announced in mid-October that legislative changes would stipulate the possibility of salary payments to bank accounts and withdrawals of funds from accounts without fees.

Strategic framework for capital market development

The conference of Poslovni dnevnik was also addressed by State Secretary in the Ministry of Finance Davor Zoričić and Deputy Chairman of the Management Board of Hanfa Tomislav Ridzak.

Among other things, Zoričić spoke about the need for further development of the capital market, aiming to ensure another source of financing for Croatian entrepreneurs. He reminded that a strategic framework for capital market development will soon be presented, with some highlights relating to regional integration of the capital market, further digitalization, increasing liquidity, and developing new products.

The ultimate goal is for the Croatian capital market to gain the status of ‘emerging market‘, which would place it more prominently on the map of foreign investors, he emphasized.

Ridzak stated that the EU lags significantly in the area of financial innovations compared to the U.S. and the UK. However, despite this, digital banks are increasingly present in the market, whose names are often unknown to the general public, and which, among other things, enable investments in stocks, funds, currencies, etc.

Contrary to the general impression, Ridzak said, the regulation of ‘fintech‘ at the EU level, although delayed, ‘is not bad’, and he also believes that positive steps have been made in regulating investments in crypto assets, so that area is no longer a ‘wild west’.

He also emphasized the European regulation on crypto asset markets, known as the MiCA regulation, which aims to protect investors and maintain financial stability while enabling innovation and enhancing the attractiveness of the crypto asset sector.