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 the banking system, risks to the financial system and adopted several other decisions on matters falling within its competence.
The risks to the financial system of the Republic of Croatia remained mostly unchanged in the third quarter of 2023, with a slightly less favourable medium-term outlook. Among the major risks coming to the foreground are the still elevated inflation and possible deterioration of the economic outlook paired with gradual growth of the financing costs of the private non-financial sector. Despite the tightening financing conditions, credit activity remained robust, primarily in the household sector, and, due to high liquidity and increased difference between lending and deposit rates, the profitability of domestic banks reached the peak of the past decade. However, in the medium-term banks’ business performance might be negatively affected by the lowering of asset quality associated with the increase in interest rates and economic slowdown. The upward trend in the prices of residential real estate continued, with the market witnessing a noticeable slowdown in activity compared to the year before, which points to a growing risk of the cycle reversing. Amid these circumstances, the CNB will maintain the countercyclical buffer rate at 1.5% in order to preserve high bank resilience should these risks materialise.
Total banking system assets decreased by 2.6% in the first half of 2023 to EUR 74bn, primarily as a consequence of the reduction in deposits of financial corporations and the withdrawal of a share of household deposits to be invested in state bonds. Although monetary assets decreased in the same period short-term and structural liquidity of the banking system remained very high.
Banking system profits rose by 73.2%, and the return on assets (ROA) and the return on equity (ROE) reached record highs of 1.9% and 16.8% respectively. Since the beginning of the year and joining the Eurosystem, banks started using the option to deposit their surplus liquidity with the CNB at the interest rate for overnight deposits which earned them considerable interest income. As a result of the aforesaid and the increase in interest income of all sectors, except households, total interest income rose following more than a decade of almost continuous decline.
The loan quality measured by the non-performing loans (NPL) ratio stagnated. Although the amount of NPLs continued decreasing, their share remained at 3.0%, due to the impact of the decrease in monetary assets on the decline in the base. A slight deterioration in the quality was visible in the performing share of the credit portfolio due to the increase in the amount of loans in Stage 2 and their share in total loans to 14.6%.
The announced dividend payments from retained earnings led to a reduction in own funds, while system exposure to credit risk increased slightly. Consequently, total capital ratio declined from 24.8% to 23.2%.
The CNB Council granted approval to the Supervisory Board of Slatinska banka d.d. to appoint Damir Kaluđer as Chairman of the Management Board and also gave its approval to the Supervisory Board of Hrvatska poštanska banka d.d. to appoint Zdravko Anđel as Chairman of the Bank's Management Board.
The members of the Council also approved the decision to issue gold collector coins "Lace-making in Croatia” in denominations of 100, 25 and 10 euro. The gold collector coin of 100 euro will be issued in the quantity not exceeding 1,000 pieces, the gold collector coin of 25 euro will be issued in the quantity not exceeding 1,000 pieces, while the gold collector coin of 10 euro will be issued in the quantity not exceeding 3,000 pieces. The sale of gold collector coins, which includes all other accompanying activities associated with the sale, including promotion shall be undertaken by the Croatian Mint Ltd. (HKN). As the authorised seller, the Croatian Mint will independently set the selling price in accordance with the Decision on setting and publishing the price list for issued commemorative gold and silver coins, numismatic coins and numismatic sets.