CNB Takes Action to Mitigate Cyclical Risks in Credit Activity
The Croatian National Bank (CNB) has taken a series of measures to address cyclical risks related to credit activity, following the ongoing deleveraging of households and corporate sectors.
Buffer Rate Set at 0%
In response to current economic conditions, the CNB has set its buffer rate at 0%. This move aims to encourage responsible lending practices and promote financial stability in Croatia.
Expanded Toolkit for Dealing with Risks
The CNB has also expanded its toolkit for dealing with risks related to high credit euroization. Under these new rules, banks are required to illustrate the impact of potential currency and interest rate shocks on monthly annuity or instalments for loans denominated in foreign currencies.
Tightened Provisioning Standards
To encourage banks to clean up their balance sheets and dispose of non-performing loans, the CNB has tightened provisioning standards. Under these new rules, if a bank does not adequately tackle the loan resolution process, it must increase its provisioning level progressively over time.
Special Rules for Risk Weights on Residential Real Estate
The CNB has also introduced special rules for risk weights on residential real estate, extending them to cover commercial properties as well. This move aims to reduce the risks associated with the property market and prevent potential bubbles from forming.
Financial Stability Council Established
The Financial Stability Council, comprising representatives from the CNB, Ministry of Finance, and other relevant institutions, has been established to monitor and address potential risks to financial stability in Croatia.
Recent Data on Credit Growth
Recent data shows that credit growth in Croatia has slowed down, with a year-on-year increase of 4.6% in December 2019. The marginal reserve requirement has been maintained at 10%, while compulsory CNB bills have remained unchanged.
Commitment to Financial Stability and Economic Growth
The CNB’s efforts to mitigate cyclical risks come as part of its commitment to maintaining financial stability and promoting economic growth in Croatia.
References
- Croatian National Bank (2014): Financial Stability Report, no 12, February.
- Croatian National Bank (2015): Financial Stability Report, no 15, July.
- Dumičić, M (2015): “Financial stability indicators ‒ the case of Croatia”, Journal of Central Banking Theory and Practice, vol 5(1), pp 113–140.