HNB’s Credit Curbing is a Battle with Inflation Already Lost

We have entered the fourth month of implementing measures to limit the approval of loans to the population, and their effect remains unclear. This ambiguity depends on who is discussing the effect. If you only listen to the Governor of the Croatian National Bank (HNB) Boris Vujčić, the measures are working. The head of our central bank spoke about this during a weekend appearance on Croatian Television, emphasizing that a slowdown in cash loans is evident.

– That was the goal because they have the greatest impact on inflation. They increase purchasing power, and with rising wages and job growth, they create additional demand. We see that loans slowed down significantly in July and August – Vujčić pointed out.

The governor speaks the truth if we consider only the stark data without broader context. And that data indicates that in July, cash loans were just under ten billion euros and increased by only 0.6 percent compared to June, which is the modest rate since the end of last year. However, compared to last July, the growth is still double-digit – over 13 percent. Data for August showed that total loans to households increased by an additional 114.6 million euros, of which the majority, 76 million euros, relates to housing loans. Cash loans increased by only 22.6 million euros, indicating the slowest monthly growth in almost two years.

If you thought that the credit faucet is tightening, you are mistaken. The effectiveness of the measures that came into force on July 1, which state that you cannot obtain a cash loan if your monthly repayment exceeds 40 percent of your salary, is being hindered – by the market. To counter a potential more pronounced decline in lending, banks rushed to lower interest rates on loans before July 1. Thus, a cash loan can now be obtained at an average of 5.73 percent, 0.4 percent lower than in the summer of last year. The decline in interest rates on housing loans is even more pronounced; on average, it can be obtained at 2.98 percent or 0.8 percent less than in July 2024. Moreover, such a low interest rate on housing loans cannot be obtained in most eurozone member states.

Bankers are therefore not overly excited about HNB’s measures. For instance, analysts at Raiffeisen Bank believe that by the end of this year, the growth rate of lending will still be a solid ten percent, and in the coming years, it will range between five and ten percent. After all, HNB did not expect a stronger effect from its measures either. However, while HNB’s measures might achieve partial success in reducing the growth of citizens’ debt burden, they are likely to fall short regarding the second goal – cooling inflation. For our inflation, at 4.2 percent, one of the highest in the eurozone, there is currently no remedy. This is compounded by the government’s intention to further stoke it with a planned budget allocation of one billion euros for higher pensions and salaries in the public sector. To be fair, inflation is also responsible for the significant increase in cash loans. Those who are struggling with rising costs are borrowing, and HNB’s concern that they do not sink into a debt abyss will certainly not stop them from maintaining a somewhat decent standard of living. After all, over-indebtedness would be prevented by the banks themselves, even without HNB’s oversight.