The Council of the National Bank of Croatia chaired by Governor Dr. Marko Skreb met on Wednesday, November 5, to review recent economic and financial developments and to examine the future role of the central bank in the development of a stable and efficient banking system in Croatia. The Council also made several decisions, acting in accordance with the authority entrusted to the central bank.
Numerous indicators confirmed that the economic activity showed further signs of recovery. In the past nine months industrial production grew on a year-to-year basis at a rate of 5.3% showing an upward trend, so that it can be expected that the annual growth rate will be even more favorable. All relevant indicators confirmed that construction industry grew at high rates. Over the past nine months retail trade recorded real growth of approximately 5,6%, while wholesale trade grew at even higher rates.
Since the recovery of the overall economic activity had no negative influence on the stability of prices and of the exchange rate, the Council of the National Bank of Croatia concluded that there were no reasons for changing the monetary policy to be pursued in the coming period. Retail prices in October were 0.2% higher than in the previous month, and 3.3% higher than a year earlier. Total retail price ten-month growth compared to the same period last year was 3.6%. The exchange rate of the kuna continued to fluctuate within a narrow band. The average lending rate of commercial banks stabilized at approximately 14%. However, large spread between lending and deposit rates remains a cause of concern and it cannot be expected that it will be reduced without further increase in competition and reduction of operating costs in the banking sector.
The beginning of bank rehabilitation and increased competition contributed already in 1996 to significant reinforcement of liquidity, solvency, and the general stability of the banking system, as well as to a larger supply of diverse credit facilities and a downward trend in interest rates. Bank profitability is on the rise, and the share of non-performing assets in the total bank assets has been decreasing. The Croatian banking sector, characterized by the aforementioned developments, comprises several bank groups. These groups differ not only in the size of assets or in the speed of growth, but also in the quality of operation. In the circumstances where market pressures, including competition, are growing stronger day by day, differences between banks will increase. Therefore, it is necessary to strengthen the legal framework and banking supervision in a timely manner, so that problem banks could be removed from the market before causing systemic failures. Having this in mind, the Council concluded that utmost attention should be paid to further development of disclosure procedures which should be based on European Union standards. Members of the Council agreed that the drafting of the new Law on Banks and of the new Law on the National Bank of Croatia should be initiated, and suggested that the necessary preparations be made by a group of experts from the central bank and the Ministry of Finance.
At the Wednesday meeting the Council of the National Bank of Croatia approved the nominations of Mr. Goran Gazivoda for Member of the Management Board of Bank Austria Croatia d.d. Zagreb, Mr. Stjepan Kolovrat for Member of the Management Board of Splitska banka d.d. Split, and Ms. Marica Prkic for Member of the Management Board of Razvojna banka Dalmacija d.o.o. Split.
In addition, the Council gave its approval to the National Bank of Croatia for the organization of the Fourth Dubrovnik Conference on Transition Economies which should be held in Dubrovnik from June 24 to June 26, 1998. The topic of the Fourth Dubrovnik Conference will be "Central Banking and Monetary Policy in Transition Economies".