Financial Crime World

Here is the rewritten article in Markdown format:

Compliance Risks in Banking Industry in Croatia Remain Moderate, Says CNB Council

At its recent meeting, the Croatian National Bank (CNB) Council discussed current economic, monetary and financial developments in the euro area and Croatia, as well as potential risks to the banking system. According to the Council’s assessment, compliance risks in the banking industry in Croatia remain moderate, despite some signs of instability.

Main Risks to Financial Stability

The main risks to financial stability are considered to be:

  • A slowdown in the Croatian economy
  • Persistent core inflation
  • The ongoing adverse geopolitical situation

These factors may lead to higher interest rates, which could pose a risk to consumers with long-term floating rate loans. However, the Council notes that the use of the national reference rate as a benchmark, legal caps on floating interest rates, and consumer measures to protect themselves have helped mitigate this risk.

Residential Real Estate Prices

Another area of concern is the rise in residential real estate prices, which may trigger a reversal in the market cycle if economic activity slows down significantly. This could increase credit risks and reduce the value of collateral on banks’ balance sheets. However, the banking system’s high capitalization and liquidity, as well as its growing profitability, have helped it remain resilient to these risks.

Banking System Performance

The Council noted that total banking assets decreased by 5.2% in the first quarter of this year compared to the previous quarter, standing at €72 billion. The largest decline was seen in household deposits and non-financial corporate deposits, which is associated with investments in government retail bonds.

Loan quality has deteriorated slightly, with the share of non-performing loans (NPLs) increasing from 3% to 3.2%. However, Stage 2 loans have been decreasing both in absolute terms and as a percentage of total loans. The Council also noted a marginal decline in the total capital ratio from 24.8% to 23.6%, mainly due to decreased own funds resulting from dividend payments.

Appointments

In other news, the CNB Council approved the appointment of:

  • Veselko Čepo as Member of the Management Board at Agram banka d.d.
  • Hasan Ecesoy as Chairman of the Management Board at Kentbank d.d.
  • Verica Ljubičić as Member of the Management Board at Samoborska banka d.d.