The HNB Council today discussed the latest monetary and economic developments, adopted a monetary policy projection for the period from 2017 to 2020, a semi-annual report on the financial situation, price stability and implementation of the monetary policy in the second half of 2016, as well as an analysis of main risks to financial stability.
"Despite continued economic growth and other good macroeconomic indicators, structural vulnerabilities of the national economy have increased, mostly because risks related to the Agrokor concern have materialised. However, a successful restructuring of the concern, considering the share of its debt in Croatia's total foreign debt, would reduce the burden of interest paid by Croatian companies and the related outflow of money from the country. Also, a good restructuring of Agrokor companies and their opening to foreign markets could increase profitability and exports in the medium term and lead to an increase in foreign direct investments in production capacity," the central bank says in a statement.
It says that the resilience of the banking system is high owing primarily to high capital adequacy and other measures the HNB has been introducing in a timely manner over the past period. "The system continues to be robust and, despite risks that arise from high exposure to the state sector and high exposure concentration - it is capable of enduring a stronger materialising of risks, including a significant write-off of banks' loans to the concern," says the statement.
The HNB Council also points to "risks triggered by changes in the structure of deposits - due to a long period of low interest rates, the amount of short-term kuna deposits in transaction accounts has increased." "Such a change in the currency structure has supported the growth of kuna lending but at the same time it has increased the exposure of the banking system to liquidity and interest risks," the bank says.
It also notes that the start of this year saw a continuation of economic growth that was of the same intensity as at the end of last year.
"In the first three months of this year the unemployment rate dropped additionally, and employment and gross salaries increased from the previous quarter. In March consumer prices rose on the month by 0.3% while inflation slowed down on the year, mostly owing to prices of energy and food commodities. The HNB has continued to pursue an expansive monetary policy, maintaining the stability of the kuna-euro exchange rate, and the liquidity of the domestic financial system in April stayed high. In the first quarter of 2017 a mild recovery of lending to domestic sectors continued, with more prominent growth of household lending. The net foreign debt in the first two months increased mildly. The report on the excessive budget deficit confirmed the strong fiscal consolidation achieved in 2016 and available data indicate that positive fiscal developments have continued into 2017," the bank said.