Financial Stability 23
The total exposure of the financial system to systemic risks has increased as a result of the war in Ukraine and the sanctions imposed on Russia, the effects of which mostly spill over to the Croatian economy via the developments in the prices of raw materials and other goods on global and regional markets.
Rising prices of oil and food products on the global markets, partly influenced by the war in Ukraine, are spilling over to domestic prices of refined petroleum products and food, propelling strong acceleration in inflation.
Residential real estate prices continued to grow in 2021, mostly faster than their key macroeconomic fundamentals, which increases the probability of a sudden reversal should there be any macroeconomic disruption.
Stable banking system
Uncertainties related to the pandemic and recent geopolitical tensions still have not jeopardised the stability of the financial sector in Croatia. High banking sector liquidity and capitalisation, supported by the capital buffers built up over the past years, played an important role in achieving this.
Challenges and risks for the domestic financial system in the forthcoming period in Croatia stem from the developments in geopolitical instabilities and inflationary pressures, the effects of the expected normalisation of monetary policy and the further increase in the prices of residential real estate.
Box 2 How much would repayment costs grow for users of housing and consumer loans in the event of an interest rate increase?
Box 3 ESRB warnings and recommendations on medium-term vulnerabilities on the residential real estate market