ZAGREB, 8 Oct (Hina) – Croatia’s banking sector remains well capitalised, although strong loan growth and increased dividend payouts have pushed banks’ capital ratios to their lowest level in about a decade, the Croatian National Bank (HNB) said following a meeting of its Council.
“The resilience of the banking system is also being weakened by growing synthetic securitisation of loan portfolios, which increases risks associated with stronger lending activity and lower capital levels resulting from higher dividend payouts,” the HNB said, adding that it would closely monitor these activities and related risks.
The central bank said it was using macroprudential measures in two areas: tightening lending criteria by reducing the quota of permitted exceptions while increasing capital requirements linked to cyclical risks.
The measures are complementary, the HNB said. Narrowing the scope for exemptions from lending criteria reduces the riskiness of new consumer loans, while a higher capital buffer strengthens banks’ ability to absorb losses and continue lending to the economy if risks materialise.
The HNB Council was also briefed at its meeting on Wednesday on current economic, financial and monetary developments in the euro area and Croatia, and discussed financial risks and the banking system.
Favourable financing conditions, dynamic lending increase household indebtedness
The central bank said solid economic growth was accompanied by rising risks, as relatively favourable financing conditions and dynamic lending were increasing household indebtedness.
Potential shocks that could trigger these risks are largely linked to global geopolitical turmoil and elevated stock market valuations, as well as significant funds being channelled into financing the infrastructure needed to develop and deploy artificial intelligence amid tighter global financing conditions.
“A sudden change in investor sentiment could reduce the value of household assets and prompt households to restrain consumption and investment, with adverse effects on economic activity,” the HNB said.
Such a scenario could tighten global financing conditions and heighten concerns about the sustainability of public finances in some major economies, with adverse effects on the Croatian economy and financial system, it added.
