By the end of August 2022, the loans of Croatian financial institutions accelerated their growth, increasing by 7.72% YoY, the most significant YoY increase since August 2009, and amounting to HRK 300.6bn.

The Croatian National Bank, HNB, has published the latest monthly report on the performance and development of the Croatian financial institutions. According to the report, the total loans of Croatian financial institutions grew by 7.72% YoY, and 0.25% MoM, amounting to HRK 300.6bn, marking the highest amount of loans issued in Croatian history. This would also mean that on a YoY basis, the growth in loans issued was the largest since August 2009. Considering the current macroeconomic situation and the price pressures coming from higher energy, food, and overall consumer goods prices, it could be expected that the loans growth would also slow down, as these pressures are eating into people’s disposable incomes, thus making loans harder to take and pay off.

However, as can be seen, by the total loan growth, this has not proven to be the case, in fact, despite all these pressures, both the loan growth and total loan amount are at an all-time high. Looking at the main drivers of this growth, household loans (the largest segment of the total loans) increased by 5.3% YoY (or HRK 7.5bn), 0.3% (or HRK 391m), and amounted to HRK 147.9bn. At the same time, Corporate loans also experienced a noteworthy increase, growing by 16.9% YoY (or HRK 14.3bn), and 0.43% (or HRK 424m) MoM, amounting to HRK 98.8bn by the end of August 2022.

Corporate and household loans growth rate (January 2015 – August 2022, YoY, %)

Furthermore, breaking down the corporate loans by purpose, loans for investments still hold the majority of the corporate loans, at 40.95% of the total (or HRK 40.4bn), and on a YoY basis, they increased by 17%, or HRK 5.92bn. Following them, we have working capital loans, which hold 33.5% of the total (or HRK 33.1bn), and on a YoY basis, they increased by 20% or HRK 5.48bn. Finally, other loans, which account for 25.55% of the total (or HRK 25.2bn), increased by 13% YoY, or HRK 2.87bn. This would mean that despite all the pressures currently faced by the companies in Croatia, banks are both willing to loan and the companies are willing to borrow an increasing amount of money, for both working capital (continued operations) purposes, as well as for further investments. If we were to look at the effective interest rates on these loans, we can see that for loans issued in HRK, loans with a currency clause, and foreign currency loans, the interest rates did not change much on a YoY basis. Interest rates on loans issued in HRK (which are higher than HRK 7.5m) increased by 0.31 p.p. YoY and amounted to 1.84% in August 2022. The same interest rate for a loan with a currency clause increased by 0.43 p.p. and amounted to 2.35%, while the interest rate for the same loan in foreign currency increased the most, by 0.98 p.p. YoY, and amounted to 1.85%.

Foreign currency corporate and housing loans effective interest rates (January 2012 – August 2022, %)

Moving on to household loans, housing loans are still both the largest category of household loans and one which is driving the growth the most. In fact, in August 2022, housing loans accounted for 49.14% of the total household loans (or HRK 72.7bn), which is an increase of 1.9 p.p. compared to August 2021. On a YoY basis, they grew by HRK 6.3bn or 9.5%. In terms of the effective interest rates, they amounted to 3.43% when issued in HRK, or 3% when issued in Euro in August 2022. This represents an increase of 11 bps YoY for domestic currency loans and a decrease of 9 bps YoY for loans issued in Euros. We expects housing loans interests to grow further in the next period, as asking interest for housing loans from commercial banks is higher for 30 bps – 80 bps, depending on the fixed rate period. Next up, we have consumer loans, which account for 36.8% of the total household loans (or HRK 54.5bn), which is a decrease of 0.81 p.p. YoY. On a YoY basis, however, they increased by 3.02% (or HRK 1.59bn). Following them, we have other loans, which account for 6.05% of the total (or HRK 8.95bn), which is a decrease of 0.32 p.p. YoY. On a YoY basis, these loans remained roughly the same as last year.

 Composition of Croatian loans to households (October 2011 – August 2022, HRKm)

So given all of this data, we can see that the interest rates are still quite low for Croatia, loans are still getting issued, both to households and corporate entities, and the growth is not slowing down, despite the negative macroeconomic outlook. With Croatia set to enter the Eurozone in January 2023, the effect of the rising interest rates instituted and to be continued by the ECB, will also have an effect on interest rates issued by the banks, and as such, an increase in interest rates could be expected after Croatia officially joins and HNB is part of the Eurozone central banking system.

Today, we bring you our updated overview of the indebtedness and capital structure of Slovenian companies which comprise the SBITOP index using the H1 2022 results. It should be noted that we excluded NLB Banka, Triglav, and Sava Re from this comparison.

At the same time, Cinkarna Celje and Krka operate at a negative net debt, meaning their cash position (short-term financial assets + cash and cash equivalents) exceeds their financial debt. Because of this reason, they were excluded from the net debt/EBITDA graph. To make up for this, we decided to show the differences in P/E and cash-adjusted P/E of these two companies. When comparing these two numbers in these companies, we can see that Cinkarna Celje has a P/E of 4x, while they have a cash-adjusted P/E of 3.3x. At the same time, Krka has a P/E of 7.6x, whilst they have a cash-adjusted P/E of 7.2x.

P/E and Cash-adjusted P/E

Out of the remaining companies (Petrol, Telekom Slovenije, and Luka Koper), Petrol has the highest net debt/EBITDA ratio of 2.9x. It should also be noted that Petrol is currently under a lot of pressures regarding its margins and financial position due to government regulation of petrol, electricity and gas prices. Further, Telekom Slovenije has a net debt/EBITDA ratio of 1.9x. Considering that Telekom Slovenije operates in the telecommunications industry, where investments into new infrastructure (and thus the need for a lot of cash to finance these projects) are taken in the form of debt, the Company’s net debt is at a higher level in comparison to their EBITDA. The company noted a decrease in EBITDA by 1.3% YoY, but this ratio noted a slight improvement since the company decreased its net debt by 5%.

Lastly, we have Luka Koper with a net debt to EBITDA of 0.2x. When considering the industry (shipping and port services) Luka Koper operates in, it comes as no surprise the need for cash to finance further port infrastructure investments. Even if this is not evident from the lower net debt/EBITDA, the Company currently has a net debt of EUR 20.5m, representing a decrease of 50% YoY due to higher cash position. During the same time, the company’s EBITDA increased 95.1% YoY, resulting in the improvement of net debt/EBITDA indicator.

Net Debt/EBITDA

We looked at how much additional debt the companies could take in order to reach 3x EBITDA, which in the region is considered a breaking point and a red flag in terms of indebtedness.

Potential Additional Debt (EUR m) to reach 3x EBITDA

We also took a look at the capital structure of the observed companies. Cinkarna Celje leads the way with virtually 100% equity, followed by Krka with 99.5%, Luka Koper with 85.2%, Petrol with 59.5% and with 57.8% equity.

Capital Structure of Select SBITOP Companies