At its session today, the Council of the Croatian National Bank was informed about current economic, monetary and financial developments in the euro area and Croatia and about the new macroeconomic projection for Croatia. Council members also adopted the Decision on the Financial Statements of the Croatian National Bank for 2023 and several other decisions falling within its competence.

In 2023, the balance on the profit and loss account of the Croatian National Bank amounted to zero euro. In 2022, the year before, a positive balance of EUR 64m was recorded and risk buffers were increased. If a longer period from 2000 onwards is observed, the CNB generated profit in nineteen of those years, while loss was recorded in only four^[1]. Thanks to the long-standing sound and successful management of financial assets, the CNB does not expect negative financial performance in the upcoming years.

Interest income and expense increased significantly in 2023 and net interest income stood at EUR 3m. The CNB’s interest income increased from EUR 285m in the preceding year to EUR 879m in 2023. This was mainly due to the significant rise in income from the management of financial assets, which refers, for the most part, to assets that had the role of international reserves before Croatia joined the euro area. At the same time, interest expenses rose from EUR 154m to EUR 877m. The increase was, by and large, a direct result of payments of interest on overnight deposits of banks with the CNB (in the amount of EUR 479m) and on government deposits with the CNB (in the amount of EUR 113m). The expenses increased due to the ECB’s monetary policy tightening, which is performed by raising key interest rates and is equally applied by all national central banks of the Eurosystem. In pursuing its primary objective of maintaining price stability, over the past two years, the ECB raised the key interest rates by 450 basis points (4.5 percentage points). The interest rate on overnight deposits of banks with national central banks of the Eurosystem thus reached 4% in 2023. Due to operating amid record high liquidity surplus levels, from monetary policy perspective, the relevant interest rate is the interest rate on bank deposits with the central bank^[2]. By raising it, interest rates on loans and deposits increase, and the pressure of aggregate demand on price growth eases. In addition to bank deposits, increased interest rates also apply to government deposits with the central bank. Total interest income in 2023 exceeded interest expenses, resulting in a positive net interest income.

The subsequently calculated costs of participation in the allocation of the Eurosystem's monetary income had an unfavourable effect on the CNB’s profit and loss account in 2023. Specifically, all national central banks of the Eurosystem participate in the allocation of income and expenses generated by monetary policy operations, with certain income and expenses being recorded during the calendar year and subsequently adjusted according to the allocation key. A national central bank may thus accrue less or more monetary income than what its share would have been had the total sum of monetary income been applied according to its capital key in the Eurosystem^[3]. National central banks may, therefore, be required to make additional payments to the pooled income, or they may generate additional income based on pooling. In 2023, the CNB was required to make an additional contribution to the pooled monetary income on that basis, which generated expenses in the amount of EUR 225m. To offset the negative effect of monetary income pooling, the buffer for the coverage of losses was reduced by EUR 202m.

Operating expenses of the CNB were reduced in 2023, while other non-interest income grew. Operating expenses include staff costs, administrative expenses, the depreciation of tangible and intangible assets, costs of production of banknotes and coins and other costs. In 2023, they totalled EUR 98m, or EUR 1.3m less than in 2022. Other income amounted to EUR 15m, while in 2022, it totalled EUR 6m. The most significant item in other income was the supervision fee for credit institutions, which amounted to EUR 14.7m in 2023.

The CNB ended 2023 with substantial levels of capital, general reserves and other buffers for financial risks, which total EUR 1.7bn and provide adequate coverage for possible future risks. In 2023, the CNB covered all domestic costs largely by earnings generated from the investment of own financial assets that are not held for monetary policy purposes, including its operating expenses and interest payments to banks and the government. In contrast to most euro area central banks, the CNB does not expect negative financial results in the upcoming period, while in the medium term, it expects profit. The expected profit will, as before, enable the maintenance of sound buffer levels for future risks.

For more information on how profits and losses of the ECB and euro area national central banks are generated, see:

https://www.ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/ecb_profits.en.html

The CNB Council granted approval to the Supervisory Board of Croatia banka d.d. to appoint Katarina Stanić as Chairwoman of the Management Board and to appoint Danijel Luković as Member of the Management Board of that bank.

Members of the Council also adopted the Decision on the issue and sale of the gold and silver collector coins "Black Lizard".

1. Solely due to the negative effect of unrealised exchange rate differences. ↑

2. Surplus liquidity held on accounts with the CNB that was eligible for transfer to the overnight deposit facility by banks averaged EUR 14.4bn in 2023. The high liquidity surplus levels were, to a certain extent, a result of liquidity releases undertaken to align the reserve requirement instrument with ECB regulations prior to joining the euro area in 2022; specifically, the reserve requirement rate has been lowered from 9% to 1%, in accordance with the rate applied in the Eurosystem. ↑

3. The legal basis for the calculation and allocation of monetary income and expenses is laid down in Article 32 of the Statute of the ESCB and of the ECB and the DECISION (EU) 2016/2248 OF THE EUROPEAN CENTRAL BANK of 3 November 2016 on the allocation of monetary income of the national central banks of Member States whose currency is the euro (ECB/2016/36) ↑