Modifying the supervision approach, Croatian National Bank seeks to secure banks’ liquidity, economic activity and jobs. In light of that, the bank supervisor banns banks from paying out dividends.
CNB followed the European Banking Authority (EBA) and the European Central Bank (ECB) responses to the economic disruptions caused by the virus outbreak and adjusted its measures accordingly.
As regulators believe that banks play an essential role in neutralizing the social and economic consequences of the pandemic, they adjusted banks’ regulations to be more flexible. Hence, the CNB has expressed its willingness to redefine the deadlines for meeting supervisory procedures on an individual basis. Moreover, the regulator has postponed some supervisory activities such as credit institutions stress-testing and direct supervisions of operations.
It is decided that a credit institution may postpone payment obligations, restructure loan obligations and grant new loans to its existing client base classified as A client as of 31 December 2019 whose operation is affected by the pandemic.
Credit institutions may decide whether they will initiate forced collection measures such as foreclosures and instruments of collateral for the debt collection from borrowers who, in the three months, starting from April 2020, fail to pay three loan installments. The measure applies to both legal and natural persons employed at such companies. With these measures regulators encourage banks to finance the continuity of businesses as well as the contingent operating costs incurred as a result of the coronavirus and will last until 31 March 2021.
No dividend payment for the year 2019
Since the liquidity requirement serves as a buffer to credit institutions in stressed periods, credit institutions may temporarily use their liquidity reserves until 30 June 2021. In light of that, the CNB will also demand credit institutions to retain net income for 2019 and adapt their variable compensations (bonuses, severance payments, etc.).T hus, ZABA and PBZ cannot pay out their previously proposed dividends in the amount of HRK 4.8 per share and HRK 76.1 per share, respectively.
To read about ZABA’s historic dividends click here.
To read about PBZ’s historic dividends click here.
As a result of the high level of capitalization and liquidity of credit institutions, the negative impact of the coronavirus pandemic on economic activity in Croatia should be alleviated.
By employing monetary measures, the CNB will resume facilitating credit institutions’ stability in Croatia.
Reserve requirement rate reduced from 12% to 9%
The Council of the CNB adopted a Decision amending the Decision on reserve requirements by which it reduced the reserve requirement rate from 12% to 9%.
This reduction of the reserve requirement rate is aimed at releasing additional liquidity which should make it easier for the banking system and, ultimately, for the Croatian economy as a whole to cope with the ongoing Covid-19 situation.
The reduction of the reserve requirement rate will lower the overall amount of the reserve requirement by HRK 10.45bn and the CNB will return the excess of the allocated kuna component of the reserve requirement, totaling HRK 6.33bn, to banks on 27 March 2020.
By reducing the reserve requirement rate, the CNB will also bring its reserve requirements system closer to the ECB’s minimum reserve requirements system that Croatia will transfer to once it adopts the euro.
