By the end of December 2022, the loans of Croatian financial institutions continued their growth, increasing by 9.1% YoY, 0.84% MoM, and amounting to a total of EUR 40.58bn.
At the end of December 2022, and as such 2022 as a whole, the loans of Croatian financial institutions continued growing despite the expectation of a slowdown due to the possibility of a recession, and high inflation rates. In fact, according to the latest report published by the Croatian National Bank, HNB, the total loans of Croatian financial institutions increased by 9.1% YoY, and 0.84% MoM, amounting to a total of EUR 40.58bn by the end of the year. As mentioned, this marks a continuation of the positive trend of growth, and it will be interesting to see what the main growth drivers are.
Breaking the loans into household and corporate loans, we can see that on a YoY basis, both household and corporate loans experienced growth. Household loans increased by 5.38% YoY, but did experience a tiny decrease of 0.05% MoM, and amounted to EUR 19.79bn. Meanwhile, corporate loans amounted to EUR 13.78bn, increasing by 20.67% YoY, and 0.44% MoM.
With corporate loans being the main driver of growth, breaking them down further can give us an overview of what drives their growth. In this way, we can see that all 3 categories of corporate loans (working capital loans, investment loans, and other loans) experienced an increase YoY. Starting off with the largest category, investment loans, they amounted to EUR 5.57bn in December 2022, increasing by 18% YoY (or EUR 853.1m), and 1.1% MoM (or EUR 59m). Working capital loans also increased by 18% YoY (or EUR 640.5m) but decreased by 1.2% MoM (or EUR 50.6m) and amounted to EUR 4.29bn. Finally, other loans increased by 28% YoY (or EUR 867.2m), and 1.3% MoM (or EUR 51.7m) and amounted to EUR 3.92bn. This data is quite positive, meaning that companies are not only continuing their investments, but are able to keep their business operations going smoothly, and most importantly, they are not stopping their plans. Even the monthly decrease in working capital loans could be attributed to the seasonality of requirements for these loans and doesn’t have to be a negative data point.
Corporate and household loans growth rate (January 2015 – December 2022, %)
Source: HNB, InterCapital Research
Looking at the household loans, as expected, the largest category of these loans is housing loans. They account for over 50% of the total household loans and have increased by 0.86% MoM (or EUR 84.3m), and 10.26% YoY (or EUR 922.8m). The 2nd largest category, consumer loans, decreased by 0.14% MoM (or EUR 10.2m) but experienced an increase of 2.4% YoY (or EUR 169.2m) and amounted to EUR 7.21bn at the end of the period.
Composition of Croatian loans to households (October 2011 – December 2022, EURm)
Source: HNB, InterCapital Research
The growth in housing loans in particular is a piece of really positive news, especially if we consider the expected increases in interest rates. In fact, as Croatia is part of the Eurozone and thus is also under the effect of the interest rate hikes by the ECB, it is expected that the newly issued loans will record an increase. How large of an increase, is difficult to say, due to the demand for loans, the risk levels, the growth of the economy, inflation, and many, many other factors. Looking at the effective interest rates, however, one might think that the situation is not changing that much, especially for housing loans. The effective interest rate for housing loans actually recorded a noteworthy decrease MoM, dropping by 0.84 p.p. to 3.16% by the end of December 2022. On a YoY basis, this is an increase of only 0.17 p.p. This would mean that compared to a period when the inflation was much lower, the interest rate hikes were yet to occur, there were no energy cost pressures, and the expectations for the global economy’s development were a lot more positive, the effective interest rates only increased a tiny bit.
For corporate clients, however, the story is a bit different. Looking at the effective interest rates on newly issued corporate loans, which are smaller or equal to EUR 1m, the interest rate amounted to 3.37%, an increase of 0.68 p.p. MoM, and 1.95 p.p. YoY. The increase is even more noteworthy for loans over EUR 1m, where they increased by 0.96 p.p. MoM, and 2.05 p.p. YoY, to reach a similar level of 3.38%.
Corporate and housing loans in EUR effective interest rates (January 2012 – December 2022, %)
Source: HNB, InterCapital Research
Here we can see the discrepancy between the corporate and housing loans. Even though the demand for both categories is still quite high, the interest rates on corporate loans have experienced a lot higher increase. But, this could indicate an adjustment more than anything else, as corporate loans have increased to levels not too different than housing loans. ECB already increased the key interest rates in January, by 50 bps, and this is to be implemented in Croatia starting 8 February 2023. A second 50 bps interest rate hike is expected in March. Because of these developments, it will be worth following how this will affect the end users. Historically, the interest rates on loans to corporate clients usually increased first and faster than the ones to households, and as such it will be interesting to see if history repeats itself, and to what degree.
