At the end of December 2022, the total deposits of Croatian financial institutions equalled EUR 55.8bn, an increase of 14.9% YoY, and 3.2% MoM.
According to the latest report on the consolidated position of the monetary financial institutions, published by the Croatian National Bank, HNB, we can see that the deposit growth rate is still quite strong. In fact, in December 2022, Croatian deposits increased by 14.9% YoY, and 3.2% MoM, amounting to EUR 55.8bn. The MoM increase is especially interesting, as compared to the last several months (-0.1% in both November and October, 0.5% in September), the growth has accelerated significantly. However, if we looked at the longer time period, say more summer months as well, we could see that the deposits increased at similar rates then, but this is more due to the influence of the tourism season than anything else.
In fact, the increase we have seen in December can solely be attributed to one thing: the introduction of the Euro as the official currency beginning in January 2023. This also led to the aforementioned increase of 14.9% YoY, but to be fair, we have seen double-digit growth on a YoY basis for most of 2022 and parts of 2021. This could be more broadly interpreted by the two already mentioned factors, but also due to inflation and economic uncertainty when people usually hold higher amounts of deposits available in case of an emergency. Combined with the fact that of the total financial assets, Croatians hold the vast majority in deposits even in “normal” times, this is to be expected.
Breaking the deposits into their components, demand deposits experienced a noteworthy increase both on a YoY and MoM basis. On a YoY basis, they grew by 25.8%, while on an MoM basis, they increased by 9.3%, amounting to EUR 25.5bn. On the other hand, saving deposits increased by 7.1% YoY, but actually decreased by 1.4% MoM, and amounted to EUR 30.3bn.
Croatian deposits breakdown (November 2012 – December 2022, EURm)
Source: HNB, InterCapital Research
Looking at the household deposits next, on a YoY basis, they increased by 13.3%, while on an MoM basis, they grew by 3.2%, amounting to almost EUR 37bn. In total, this would mean that 66.3% of all deposits held are household deposits, representing a decrease of 0.95 p.p. YoY, and remaining roughly the same MoM. As Croatia is part of the Eurozone, it will come under the direct influence of the ECB’s monetary policy, and by extension, the interest rates. Recently, ECB has raised all the key interest rates by 50 basis points. For example, the deposit facility, which was until the latest hike maintained at 2%, is now at 2.5%. This facility can be used by banks to make overnight deposits with the Euro system and will help Croatian banks increase their interest income. The 2nd one, the main refinancing operations (MRO) interest rate, is the rate that banks pay when they borrow money from the ECB for one week, and this has been increased to 3%. Finally, the marginal lending facility, with which the banks take overnight deposits at ECB, is set to 3.25%.
In other words, as part of the Eurozone, Croatia will also be under the influence of these rates, and their subsequent hikes. It should be noted that this will only be apparent in the data from February 2023 onwards, as these rates come into effect on 8 February 2023. The increase in these interest rates should also boost the deposit rates for customers, but the increase in this category will also depend on the interest rate increases on loans. Thus far, the loan growth has been quite strong (you can read about the latest data from December here), and the interest rates haven’t been increasing, at least on the main loan category for households, housing loans. Unless these rates go up, and they should if the rate hikes by ECB continue, then we shouldn’t expect that the deposit interest rates will go up significantly. Furthermore, even if the loan interest rates go up, then the growth in deposits should follow, but it shouldn’t be expected that they will go up nearly as much, as historical data can show us.
