At its session today, the Council of the Croatian National Bank examined the latest monetary and economic indicators, as well as a report on the banking system condition in the fourth quarter of 2014.

According to mixed signals sent by high frequency data series, economic activity will continue to stagnate in early 2015. Improved financing conditions and continued low oil prices are expected to have a positive impact on economic activity further in the year, although the CNB's flash estimate of GDP, based on partial available data, indicates a very mild current decrease in the first quarter. The Consumer Price Index decelerated at a slower annual rate in February, energy being the only component negatively contributing to inflation. The CNB continued to maintain the kuna/euro exchange rate stability by foreign exchange interventions and to encourage lending, subdued due to weak domestic demand and further deleveraging by households. Foreign exchange inflows from government borrowing in February and March boosted gross and net international reserves, as well as free reserves in bank accounts.

As shown by available data on banks' operations in the last quarter of the previous year, loans granted increased significantly, halting the long-standing weak lending trend. However, only loans to government units recorded growth, while corporate and household loans declined. Thanks primarily to this increase, the non-performing loans to total loans ratio dropped from 17.24% at the end of the previous quarter to 16.95%, down for the first time since the second quarter of 2008. Bank assets also edged down and bank deleveraging against foreign parent banks continued, although at a reduced rate. According to preliminary and unrevised data, the profit of banks in 2014 was HRK 2.5bn (compared with HRK 695.4m in 2013). The strong growth was largely due to a decrease in provisioning expenses, but to some extent also to an increase in banks' pre-provision operating profit, recorded after a two-year downward trend. The operations were further rationalised, so that income from the sales of business units grew, while general expenses continued to fall. The 21.4% total capital ratio shows that capital levels are strong and that the banking system is stable.