At its session today, the CNB Council was informed about the current economic, monetary and financial developments in the euro area and in Croatia, it discussed financial stability and adopted several other decisions on matters falling within its competence.

The risks to financial system stability remain moderately high, as a reflection of elevated geopolitical risks and financial market turbulence, as well as structural weaknesses of the domestic economy, and are accompanied by the still high uncertainty. However, there are signs of improvement in the economic outlook and of a gradual slowdown of inflation. The introduction of the euro strengthened the integration of the Republic of Croatia into the European financial flows and almost entirely eliminated currency risk, mitigated the transfer of increasingly more restrictive monetary policy on financing conditions and helped maintain the relatively low stress levels in the domestic financial market. This contributed to the continued upturn of the financial cycle marked by strong growth in the prices of real estate and lending. These vulnerabilities are exacerbated by uncertain economic outlook and the expected continuation in the rise in interest rates. Bank lending rates for companies increased visibly in the second half of 2022 and at the beginning of 2023, while interest rates on loans to households started mildly increasing only this year. At the same time, the costs of debt repayment for existing debtors increased as well, which in the household sector is mitigated by the interest rate fixing practices, at least in the initial loan period, the use of the National reference rate (NRR) as the dominant variable parameter and statutory restrictions on maximum interest rates.

Despite the uncertain environment, the Croatian banking system remained stable and liquid in 2022, with the high amount of liquid assets, such as cash and assets with the central bank, making banks more resilient to sudden shocks. The capital ratio remained among the highest in the euro area, while profitability might increase amid the increase in interest rates. On the other hand, should the rise in interest rates be accompanied by the slowdown in economic activity, the growth of credit risk might hamper profitability.

The CNB continued adjusting the level of capital buffers to the development of systemic risks and conditions under which banks operate. Thus, the increase of the countercyclical buffer rate was announced on two occasions last year, up to a total of 1% aiming to strengthen the resilience of credit institutions to possible losses in case the risks associated with increased lending and growth in real estate prices materialised. Should relatively favourable macro-financial circumstances continue, the countercyclical buffer rate might be additionally increased.

The CNB Council granted approval to the Supervisory Board of Imex banka d.d. to appoint Dijana Kalinić and Igor Unković as Members of the Bank’s Management Board.