CNB Council: Economic growth and higher real incomes strengthen the resilience of the financial system

Published: 21/5/2025

At its session today, the Council of the Croatian National Bank was informed about the current economic, monetary and financial developments in Croatia and the euro area, it discussed financial stability and adopted the Semi-annual Information on the Financial Condition, the Degree of Price Stability Achieved and the Implementation of Monetary Policy in the Second Half of 2024, as well as the Annual Report of the Croatian National Bank for 2024. The members of the Council also adopted several decisions within their competence.

The beginning of 2025 was marked by high uncertainty in financial markets related to geopolitical and trade tensions. The introduction of new US tariffs and the increase in bilateral tariffs in trade with China in early April strongly increased volatility in financial markets. Although the temporary postponement of the application of tariffs helped to mitigate the intensity of market disruptions, increased uncertainty and greater risk aversion could permanently worsen the outlook for the global economy and strengthen risks to financial stability.

In Croatia, solid economic growth and higher real incomes are strengthening the resilience of the domestic economy and the financial system. However, domestic systemic risks are also increasing in parallel with the impact of global uncertainty, as strong domestic demand is driving the increase in housing prices and lending activity. Housing loans have continued to grow at stable and elevated rates, while consumer optimism and rising personal consumption further support the growth of non-housing loans. Amid decreasing interest rates and strong demand, lending to non-financial corporations has also accelerated. The banking sector remains highly capitalized and liquid, making it exceptionally resilient to various disruptions. Its currently elevated profitability, even if it weakens in an environment of declining interest rates and higher credit risk, contributes to the resilience of the banking sector.

The Croatian National Bank has maintained its existing, relatively high, capital buffers in the context of heightened risk. These buffers strengthen the banking sector’s ability to absorb losses associated with highly unlikely adverse scenarios. While preserving the resilience of the system, the Croatian National Bank is striving to limit the accumulation of new risks to financial stability associated with strong household borrowing by easing the lending criteria, which is why new macroprudential restrictions on consumer lending criteria will enter into force as of 1 July 2025.