At the end of October 2023, the aggregate loans issued by the Croatian financial institutions experienced an MoM decline of 0.2%, while YoY it grew by 5.6%. Meanwhile, the average housing loan interest rate amounted to 3.6%, an increase of 0.91 p.p. YoY, and 0.06 p.p. MoM. At the same time, consumer loans recorded an average interest rate of 5.89%, growing by 0.69 p.p. YoY, and 0.05 p.p. MoM.
Last week, the Croatian National Bank, HNB, released the latest report on the developments recorded by the Croatian financial institutions, for October 2023. According to the report, the total Croatian loans experienced a slight decline on the MoM basis, decreasing by 0.2% (or EUR 97m), while they still kept growing on the YoY basis, by 5.6%, or EUR 2.2bn, to EUR 42.8bn. Now it isn’t uncommon that the loans decline on a MoM basis, as this has already happened several times during 2023. It would take several consecutive months to really see the beginning of a trend, where we would see a decline in demand for loans. This isn’t that surprising to consider, as the majority of the EU is currently experiencing a decline in loans, especially housing loans, as the high-interest rates combined with overall housing prices disincentivize investment into real estate at the moment.
To see if this is also happening in Croatia, we can break down the loan development into two main categories, i.e. household and corporate loans. During October, both households and corporate loans recorded growth, both on the MoM and YoY basis. Households grew by 0.8% (or EUR 162m) MoM, and 8% (or EUR 1.59bn) YoY, to EUR 21.4bn. Corporate loans on the other hand, increased by 0.2% (or EUR 35m) MoM, and 5.5% (or EUR 754m) YoY, to EUR 14.4bn.
Corporate and household loans growth rate (January 2015 – October 2023, %)
Source: HNB, InterCapital Research
Taking a closer look at the household loans, on a MoM basis, consumer loans grew the most in absolute terms, increasing by 1.1%, or EUR 85.1m, followed by housing loans at 0.5%, or EUR 57.2m. These 2 categories combined, make up 86.6% of total household loans, at 50% (housing loans), and 36.6% (consumer loans), respectively. Moving on to the YoY basis, the largest increase here was recorded by housing loans, which grew by 10%, or EUR 978.6m, followed by consumer loans at 9.1%, or EUR 656m, and other loans’ category, which increased by 4.3%, or EUR 54.3m. On the other hand, overdrafts on transaction accounts decreased by 6.8%, or EUR 59.5m.
Composition of Croatian loans to households (October 2011 – October 2023, %)
Source: HNB, InterCapital Research
Meanwhile, in terms of corporate loans’ categories, on an MoM basis, working capital loans increased by 0.9%, or EUR 38.4m, investment loans remained unchanged, while other loans’ category declined by 0.25% or EUR 10.5m MoM. On the other hand, on the YoY basis, all 3 corporate loan categories grew, with investment loans increasing by 6.4%, or EUR 348m, followed by other’ loans category, at 7.8%, or EUR 306m, and working capital loans, at 4.6%, or EUR 201m.
Finally, taking a look at the other side of the loan development, interest rates, the average housing loan interest rate amounted to 3.6% during October, growing by 0.06 p.p. MoM, and 0.91 p.p. YoY. The average consumer loan grew by 0.05 p.p. MoM, and 0.69 p.p. YoY, to 5.89%, and lastly, the average corporate loan interest rate increased by 0.30 p.p. MoM, and 2.4 p.p. YoY, to 5.19%.
Average new housing and corporate loan interest rates (December 2011 – October 2023, %)
Source: HNB, InterCapital Research
As such, we can see continued progression of interest rates, which is to be expected due to higher deposit interest rates at the Central Bank. What is interesting to see though, is the fact that consumer and housing loans aren’t increasing as much, which could be reflective of the caution by the banks not to increase interest rates too much, and thus lose on potential clients. Corporate loans, on the other hand, grew a lot more significantly, but the overall interest on them is still below that of, for example, consumer loans. As the ECB decided to pause the latest rate hike, worrying that the EU might face a recession (something that is already happening in countries such as Germany), it is also expected that loan interest rate growth might stabilize, or even stop. Until the ECB interest rates start declining, however, it shouldn’t be expected that the loan interest rates will. Furthermore, as the loan interest rate experiences a certain delay to ECB interest rate hikes, the decrease in ECB interest rates won’t mean that bank loan interest rates will decline immediately, but rather gradually, as was the case with the increase during hikes.
One other interesting tidbit that is published quarterly, is the non-performing loans of the Croatian banks. Overall loans increased by 7% YoY and QoQ (these include the government loans, loans held between different banks, deposits held at the CB, etc.) but the NPLs continued to decline, by 14% YoY and 5% QoQ. As such, the overall NPL ratio declined by 0.33 p.p. QoQ, and 0.63 p.p. YoY, and amounted to only 2.66% in Q3 2023.
