Page 79 - Central & Southeast Outlook 2020

diminishing reliance on cross-border lending. The ratio of non-performing loans (NPLs) continues to trend downwards (it stood at a revised 7.3% in June) in part due to ongoing sales of NPL portfolios,” rating agency Fitch said in December.
Croatian banks are coming under scrutiny from the European Central Bank (EBC) which will carry out comprehensive asset quality reviews of the country’s major banks as Zagreb aims to join the Exchange Rate Mechanism (ERM2) and the European Banking Union by mid-2020, critical steps on its path towards euro adoption. The Croatian government says it will carry out reforms within the banking sector as part of the preparations to join ERM2.
Commenting on the health of the banking sector, Raiffeisen analysts said in September: “From a risk perspective, monetary easing is allowed by banks’ strong external positions, steady FX outlook and reduced fiscal risk.”
Raiffeisen also pointed to competition between banks on lending, a result of the rising surplus of liquidity in the financial system.
After new restrictions on mortgage loans, unsecured cash loans have accelerated by 12.5% on an annual basis, Raiffeisen said. Fitch also noted that household credit growth (up 6% in 3Q19) has been offsetting ongoing deleveraging in the corporate sector.
“Interest rates offered by banks on time deposits are close to zero ... Consequently, the share of time deposits has fallen under half of total customer deposits. As interest rates offered on time deposits are not forecasted to change in 2019, the maturity gap in banking assets and liabilities will deepen further,” says Raiffeisen.
“Portfolio quality is expected to make a positive contribution to the banking sector profitability in the coming period, but the base is shrinking. On the negative side, the credit registry has suspended consumer debt reports since May 2018 due to incompatibility with the GDPR. Rising consumer loans, disbursed without information of total client indebtedness could lead to higher NPL ratios and risk costs in the future. It is still unclear when the credit registry will be able to renew the full service.”
In common with the rest of Southeast Europe, Croatia has seen some consolidation in the banking sector, notably the merger of the Croatian branch of SocGen with OTP. Further consolidation among the smaller banks is likely.
79​ CESE Outlook 2020​ ​ ​www.intellinews.com