At its session today, the CNB Council discussed current economic and financial developments and examined the most recent assessment of risks to financial stability. The items on the agenda included the report on the banking system condition for the third quarter of 2020 and the CNB Council also adopted several decisions on matters falling within its competence.

The deceleration of economic activity recovery at a quarterly level may be expected in the fourth quarter of 2020 due to the worsening epidemiological situation and the imposition of more stringent epidemiological measures. The continued growth of employment and the decrease in the number of unemployed persons during that period were also influenced by the government job preservation grants. The annual fall in consumer prices rose to 0.7% in December from 0.2% in November, reflecting the decrease in the contribution of food products (mostly due to the base effect) in an environment of low energy prices. At the end of the previous and in the beginning of the current year, the degree of expansionary monetary policy strengthened, so that banks’ free reserves reached a record high, mostly as a result of the purchase of almost HRK 10bn in foreign exchange from the government in December in addition to a smaller contribution of the conducted foreign exchange intervention. The average daily excess kuna liquidity of the domestic banking system in January 2021 stood at HRK 59.9bn from HRK 40.3bn in the previous year.

The CNB Council also examined the most recent assessment of risks to financial stability and concluded that the overall exposure to systemic risks remained high. Despite the continued exceptionally favourable financing conditions, short-term risks in the non-financial sector increased, compared to the estimate for the third quarter. The vulnerability of enterprises in affected activities will largely depend on the duration of the health crisis, the dynamics of economic recovery and the efficiency and duration of measures aimed at alleviating the economic impacts of the crisis. The uncertainty regarding future trends in employment and wages is also present in the household sector. Government measures aimed at facilitating the financial position of entrepreneurs and the decline in revenues caused by the fall in economic activity resulted in the short-term worsening of the government finance situation. The level of fiscal deficit and public debt rose considerably, thus presenting a pronounced structural risk over a medium term.

Banking sector’s liquidity and lending potential reached historical highs, enabling the continuation of a smooth operation of banks and domestic lending. The common equity tier 1 capital ratio increased to a record 24% at the end of September. The 2020 profit will also contribute to the capitalisation of the sector, which should provide additional boost to equity in accordance with the provisions of the Decision on a temporary restriction of distributions. A set of economic policy measures aimed at mitigating the consequences of the pandemic postponed the tackling of potential risks to the resilience of the banking sector, primarily credit risk. Although the share of non-performing loans in total loans held steady, the growth of the share of performing loans with a recognised increase in credit risk (loans in Stage 2) had been noticed from the beginning of the year, so that in the first nine months the share of bank loans with an increase in credit risk grew moderately. However, the quality of loans to the private sector in that period, in addition to regulatory relief measures, was also temporarily assisted by the agreed moratorium on credit obligations.

Furthermore, the CNB Council adopted the Decision on the appointment of the Commission for the Selection of Graphic Design Proposals of ethnic motifs of the Republic of Croatia on euro coins in circulation, as an advisory and expert support to the Currency Committee.

The proposal of the Decision on the appointment of the Selection Commission was endorsed at the 173rd meeting of the Currency Committee held on 19 January 2021. At the invitation of CNB experts, the proposed members of the Selection Committee were nominated by relevant institutions and professional associations in accordance with the conclusions of the 170th meeting of the Currency Committee held on 16 October 2020. The members appointed to the Commission for the Selection of Graphic Design Proposals include the President of the Commission for the Selection of Graphic Design Proposals Ivana Jakir-Bajo, Vicegovernor, CNB representative; the Deputy President of the Commission for the Selection of Graphic Design Proposals Bojan Fras, Vicegovernor, CNB representative; Vesna Bedeković, PhD, representative of the Education, Science and Culture Committee of the Croatian Parliament;  Dragan Damjanović, PhD, representative of the Croatian Art Historians Association; Zvonimir Frka-Petešić, Chief of Staff to the Prime Minister of the Government of the Republic of Croatia; Sculptor Kažimir Hraste, representative of the Arts Academy of the University of Split – Ministry of Science and Education of the Republic of Croatia; Alem Korkut, MA, Associate Professor, representative of the Academy of Fine Arts of the University of Zagreb – Ministry of Science and Education of the Republic of Croatia; Asst. Prof. Damir Kovač, MD, PhD, representative of the Croatian Numismatic Society; Asst. Prof. Velibor Mačkić, PhD, representative of the Office of the President of the Republic of Croatia; Andreja Metelko-Zgombić, representative of the Ministry of Foreign and European Affairs of the Republic of Croatia; Velimir Neidhardt, F.C.A., representative of the Croatian Academy of Sciences and Arts; Ira Payer, representative of the Croatian Designers Society; Lazer Rok Lumezi, representative of the Croatian Association of Artists of Applied Arts; Nevena Tudor Perković, representative of the Ministry of Culture and Media of the Republic of Croatia; Andreja Vukojević, representative of the Croatian National Tourist Board; and Zvonko Šakić, representative of the Ministry of Finance of the Republic of Croatia. Damir Bićanić, Adviser at the Currency Safekeeping, Processing and Supply Department of the CNB’s Currency Area is appointed as Secretary of the Commission for the Selection of Graphic Design Proposals. The task of the Commission is to review and determine expert design proposals for the selection of ethnic motifs and the graphic design of the Republic of Croatia on euro coins in circulation and propose designs to the Currency Committee.

In addition, the CNB Council adopted the decision on issuing the approval to the proposal of the Supervisory Board of Istarska kreditna banka Umag d.d. to appoint Miro Dodić as President of the Management Board. The CNB Council also agreed with the proposal of the Supervisory Board of KentBank d.d. to appoint Aleksandra Cvetković as Member of the Management Board and with the proposal of the Supervisory Board of Privredna banka Zagreb d.d. to appoint Dinko Lučić as President of the Management Board, and Draženko Kopljar as Member of the Management Board.

The CNB Council adopted the Decision on releasing into circulation kuna and lipa coins with mint year "2021".