As of H1 2023, the total NPLs (non-performing loans) amounted to EUR 1.8bn, representing a decrease of 6% YTD, and 19% YoY. Due to the decline in the NPLs, but also the increase in the total loan amount, the NPL ratio stood at 2.99%, a decrease of 0.18 p.p. QoQ, and 0.83 p.p. YoY.
Despite the increase in interest rates that we have witnessed by the ECB in the last couple of years, new loan production has continued in Croatia. According to the latest data for August 2023, the total loan amount grew by 6.2% YoY. Meanwhile, the average housing interest rate amounted to 3.46%, and the average consumer loan interest rate amounted to 5.87%. Finally, the average corporate loan interest rate amounted to 4.98%. Besides loans themselves, in this overview, we’ll look at the movements of non-performing loans (NPLs) in Croatia, based on the latest H1 2023 data.
The total loan amount in Croatia equaled EUR 60.3bn in H1 2023. It should be noted that this contains various types of government and state loans, which will be excluded from this comparison. For this overview, we’ll look at corporate and household loans. As of H1 2023, corporate loans amounted to EUR 14.8bn, representing 25% of the total loan amount. At the same time, household loans amounted to EUR 20.8bn, representing 34% of the total.
Breakdown of corporate loans by activity categories (H1 2023, EURm)
Source: HNB, InterCapital Research
Breakdown of household loans by activity categories (H1 2023, EURm)
Source: HNB, InterCapital Research
App. 91% of the total corporate NPLs are recorded in the 9 activity categories of corporate loans, while 90% of all household loans are recorded within the 3 described household loan categories. Breaking this down further and starting with the corporate loan NPLs, in total they amounted to EUR 833.5m, and have in fact been on a downward trajectory for quite some time now. In fact, in H1 2016, the corporate NPLs stood at EUR 3.7bn, meaning that by H1 2023, they declined by 77%. During the same period, the total corporate loans went up by 13%. Of course, this was to be expected in 2016, just a year after Croatia officially ended its 6-year-long recession. Even looking at a more recent period, say from H1 2020 until H1 2023, the corporate NPLs were halved. Even since H1 2022, they recorded a 17% decrease.
This would mean that despite the increasing interest rates, and the high inflation and costs that the companies are facing, thus far there hasn’t been that much pressure on corporate clients that they would be forced to miss payments, and thus contribute to NPLs. Among the 9 corporate loan activity categories, a decline in 7 out of 9 categories has been recorded, with only electricity, gas, steam, and air conditioning supply as well as real estate activities recording an increase in NPLs. In the case of the electricity category, the total loan amount expanded by 123% YoY to EUR 2.1bn, while the NPLs increased by 51% to EUR 23.4m. For real estate activities, total loans issued amount to EUR 1.2bn, a 20% increase YoY, while the NPL ratio expanded by 7% to EUR 26.7m. In other words, the ratio of the NPLs did not increase proportionally, and when we look at absolute amounts this is even more evident – a large expansion in the loan amount, with a small increase in the NPLs. For other categories, the story is even more interesting, as they, for the most part, reported an increase in the loan amount, while they recorded a decrease in NPLs.
Moving on to households, a reduction of NPLs has been recorded across the housing, consumer, and overdraft categories. Once again we see a similar story as with the corporate loans. In fact, housing loans grew by 9% YoY and amounted to EUR 10.3bn, consumer loans increased by 5% to EUR 7.6bn, while overdrafts decreased by 8% to EUR 798.8m. At the same time, the NPLs decreased by 31%, 18%, and 13%, respectively. All combined, the household NPL ratio stood at 4.58%, a decline of 0.24 p.p. QoQ, and 1.51 p.p. YoY. For corporate loans, it stood at 5.62%, a decline of 0.55 p.p. QoQ, and 2.17 p.p. YoY. Combined, this led to an NPL ratio of 2.99%, a decline of 0.18 p.p. QoQ, and 0.83 p.p. YoY.
Total, household, and corporate loan NPL ratio comparison (Q2 2016 – Q2 2023, quarterly, %)
Source: HNB, InterCapital Research
Overall, despite the challenging situation that we have witnessed in the last couple of years, the situation with both the banking sector as well as companies and households seems to be stable. However, with the currently high ECB interest rates still not circulating through the economy entirely in the form of higher loan interest rates, there is a possibility that the situation will deteriorate. This is due to several factors, firstly the pressure on businesses due to higher interest rates increasing the cost of financing. At the same time, inflation is increasing costs, whilst reducing the disposable incomes of citizens. The second factor is, of course, the duration of higher interest rates, which the current narrative points to as “higher for longer”, meaning that not only are the interest rates currently high, but this level might be maintained for some time. When all taken together, we get a situation that might negatively influence both businesses and households alike, leading to an increase in the NPLs.
