The Zagreb Interbank Offered Rate (ZIBOR) that serves as the benchmark interest rate on the Croatian market will no longer be used after 1 January 2020 and will have to be replaced by another rate. This is due to the fact that ZIBOR will not be adjusted with Regulation (EU) No. 2016/1011 (EU Benchmarks Regulation - BMR), which, in order to ensure the proper functioning of the internal market, in particular the financial markets, and to ensure better transparency and a higher level of consumer and investor protection, requires that all benchmark interest rates or values in the European Union comply with the new requirements in terms of administration and authorisation. This was decided by the banks participating in the calculation of ZIBOR, which explained such decision by the approaching introduction of the euro and high financial and other requirements for maintaining ZIBOR under the new regulation. The Croatian Banking Association informed the Croatian National Bank as the institution responsible for the supervision of the benchmark interest rate and authorisation of administrators in Croatia of this decision.
In view of these considerations, and taking into account the view that no new applications for ZIBOR administration are likely to be submitted by the set time limit, i.e. 31 December 2019, the Croatian National Bank has called on the banks using ZIBOR to initiate without delay the process of transition to other rates, and to inform their clients about that process in a timely and comprehensive manner. The banks have also been instructed to regularly notify the central bank on the actions taken, including on the alternatives that they will offer to their clients.
As regards contracts with consumers, who as a customer group are at the centre of the mentioned EU regulation, in order to prevent that this transition has any adverse effect on them, the banks are required to:
- enable consumers to refinance their loans and to make early termination of their deposit contracts free of charge;
- provide to the consumer as a minimum two alternative offers;
- if the offers imply new (replacement) variability parameters, to provide the consumer with a historical overview of developments in the offered alternative interest rate variability parameters, going back five years as a minimum and to clearly underline all the risks associated with selection by the consumer of each of the offered interest rate variability parameters;
- in the case of credit contracts, provide to the consumer with a repayment plan simulation for the remaining duration of the credit contract for each specific offer made by the credit institution, clearly indicating their impact on the monthly payment/annuity for the consumer;
- irrespective of the specific offers made by the credit institution, inform the consumer of the possibility of loan refinancing and early termination of deposit contracts free of charge, and in the case of deposits, of the recognition of the agreed interest accrued up to the moment of early termination of the contract;
- to inform the consumer about the time limit by which he/she may sign an annex to the contract and about the time and place where he/she may sign an annex to the contract, clearly indicating to the consumer the consequences of his/her failure to respond to the invitation by the credit institution to regulate the contract by way of an annex.
In addition, the banks need to give to the consumer sufficient time to consider the possibilities offered and reach an informed decision, following the receipt of the notification and invitation to sign an annex to the contract.
According to the available data, ZIBOR is used predominantly when negotiating credit and deposit (time deposits) relationships and when determining the price of financial instruments and derivatives, and compared to other benchmark rates it accounts for a small share of the total. For example, the share of loans with a variable interest rate granted at ZIBOR in the period from October 2017 to September 2019 ranged between 0.77% and 1.3%, and at the end of September 2019, it accounted for 1.1% (HRK 1.77bn). Of the total loans granted at ZIBOR, 83.7% were granted to the corporate sector and 10.4% to the household sector (mostly crafts and trades) and 5.8% to other sectors (financial institutions and the government). As regards deposits, ZIBOR was used as the benchmark interest rate in a government deposit of HRK 21.9m.
The table presented below shows data on ZIBOR representation in relation to other benchmark rates in bank loans granted at a variable interest rate.
Table: Structure of bank loans with a variable interest rate by parameter and sector, 30 September 2019
|Type of benchmark rate (BR)||Corporate sector||Household sector||Financial institutions||Government||Total||Share of BR in total loans|