The real slowdown in the growth rate of loans, at least on a monthly basis, started last month, i.e. December 2023. This trend worsened in January, with the MoM loan amount declining by 0.6%, leading to a slowdown in YoY growth to 3.6%. As such, the total loan amount issued in Croatia amounted to EUR 42.8bn. The situation with the interest rates is a bit more varied, with several categories still recording MoM and YoY growth, while one category recorded YoY growth, but a MoM decline.

According to the latest report on the changes recorded by the Croatian financial institutions, January 2024 recorded the first real decline in the growth of the loans, at least on a MoM basis. As such, total loans issued amounted to EUR 42.8bn, decreasing by 0.6% MoM (or EUR -246m), but still growing by 3.6% YoY. However, YoY growth did slow down, down from app. 11% YoY in the same month last year, down to mid-single-digit levels, and now to this level. This was to be expected of course, as the higher interest rates on loans due to the elevated interest rates from the ECB have finally circulated through the economy.

Breaking the largest categories of loans down, to household and corporate loans, we can see that household loans grew by 0.6% MoM, and 9.9% YoY to EUR 21.8bn, while corporate loans decreased by 2.3% MoM, but still grew by 2.7% YoY to EUR 14.2bn. This would imply there is still demand for household loans, but that corporate loan demand has slowed down significantly.

Corporate and household loans growth rates (January 2015 – January 2024, YoY, %)

Source: HNB, InterCapital Research

Taking a closer look at these categories, inside the household loans, the largest absolute MoM increase was recorded by consumer loans, which grew by 0.9%, or EUR 72m, followed by housing loans, which increased by 0.6%, or EUR 64m. The only 2 other notable categories were overdrafts on transaction accounts, which grew by 1.6%, or EUR 12m MoM, while the other loans’ category decreased by 0.9% or EUR 12.6m. A similar situation is present in the YoY data, albeit this time housing loans take the lead, growing by 10.4%, or EUR 1.03bn YoY, followed by consumer loans at 12%, or EUR 862m, and the other loans’ category, with an increase of 6.7%, or EUR 83m.

Composition of Croatian loans to households (October 2011 – January 2024, EURm)

Source: HNB, InterCapital Research

Meanwhile, corporate loans fared worse, with the other loans’ category decreasing by EUR 283m or 6.7% MoM, followed by working capital loans at EUR -32.7m, or -0.7%, while investment loans increased by EUR 15m or 0.3%. On the other hand, on the YoY basis, investment loans grew by 7.9%, or EUR 434m, followed by working capital loans at 2.6%, or EUR 112m, while the other loans’ category declined by 2.7% or EUR 110m.

Moving on to the other side of the coin and taking a look at the loan interest rates, the average new housing loan interest rate amounted to 3.64%, growing by 0.04 p.p. MoM, and 0.75 p.p. YoY. Consumer loans also grew, by 0.17 p.p. MoM, 0.75 p.p. YoY to 6.11%, while corporate loans declined on a MoM basis, by 0.16 p.p., but increased on the YoY basis, by 1.77 p.p., to 5.14%.

Average new housing and corporate loan interest rates (December 2011 – January 2024, %)

Source: HNB, InterCapital Research

As we can see, both the loan growth and interest rate growth have slowed down according to the latest available data. Given this dynamic, it shouldn’t be expected that further loan interest rate growth will be recorded, at least in a significant amount. Furthermore, as the ECB interest rate cuts are expected by summer, and at the latest the 2nd half of the year, loan interest rates could also start coming down. However, it should be noted that when the interest rate hikes began in July 2022, it took time for the loan interest rates to increase. As such, one shouldn’t expect a 1:1 reduction in the loan interest rates when the cuts begin.

During 2023, Transgaz recorded an op. revenue growth of 13% YoY, an EBITDA increase of 2%, and a net income of RON 169m, down 52% YoY.

Starting off with the op. revenue, it amounted to RON 1.78bn, increasing by 13% YoY. This growth was influenced by several factors. Firstly, the higher revenue from capacity booking, at RON 80.5m. Romgaz provides further details inside this category, and as such this increase was influenced by: a higher capacity booking tariff by RON 0,344/MWh, with a positive influence of RON 123m, higher booked capacity by 2.49m MWh, with a positive influence of RON 6.2m, and higher capacity overrun revenue by RON 45.4m. The growth across these categories was offset by the lower revenue from the auction premium of RON 94.4m.

Secondly, higher commodity revenue by RON 19.5m was recorded, due to a RON 0.14/MWh higher commodity transmission tariff, with a positive influence of RON 19.9m. This was slightly offset by RON 448k of lower gas transmitted capacities YoY. Thirdly, higher international gas transmission revenue, at RON 42.4m, according to the Agreement for the termination of the legacy Contract between Transgaz and GPE.

In terms of operating expenses, in total they amounted to RON 1.67bn, growing by 17% YoY.  Inside the OPEX, the largest increase was recorded in other op. costs increased by 51% YoY to RON 262.7m. This was due to the costs of the depreciation of trade receivables, as the Company wasn’t able to collect receivables from Gazprom in the amount of RON 121m, which was offset by the collection of receivables from Electrocentrale Constanta, at RON 20.5m, and Mehedinti Gaz at RON 3.2m. Furthermore, employee expenses grew by 16% YoY to RON 572m, as a result of the inflationary pressures. The cost of royalty also increased, by almost 8.7x YoY to RON 55.3m, as a result of the change in the royalty rate from 0.4% to 11.5% of the gross revenue from transmission and transit operations.

Furthermore, it should be noted that depreciation increased by 11% YoY to RON 482.7m, based on the completion and commissioning of investment projects. As depreciation is part of the EBITDA, and it recorded this growth, EBITDA actually increased by 2% YoY, to RON 595m, even though revenue outpaced overall OPEX growth. This would also imply an EBITDA margin of 33.3%, a decrease of 3.5 p.p. YoY.

Next up, the net financial result amounted to RON 99.4m, decreasing by 64% YoY. This came due to the 48% YoY decrease in financial income to RON 260.9m, mainly due to the recording of the update of regulated assets value with the inflation rate of 6.6% on 31 December 2023, as compared to 16.4% on 31 December 2022. According to this calculation, the value was RON 144.6m in 2023 as compared to RON 287.9m in 2022. At the same time, financial expenses also decreased, by 28% YoY to RON 161m.

As a result of these developments, net income decreased significantly, by 52% YoY to RON 169.3m. This would also imply a net income margin of 9.5%, representing a decline of 12.8 p.p. YoY.

Transgaz key financials (Preliminary 2023 vs. 2022, RONm)

Source: Transgaz, InterCapital Research

Taking a quick look at the balance sheet, total assets grew by 6% YoY, supported by a 2% increase in the non-current assets to RON 7.02bn, and a 26% increase in current assets to RON 1.7bn. Inside the non-current assets, trade receivables and other receivables grew by 13% to RON 2.4bn, right of use of the leased assets increased by 10x YoY to RON 170m, while intangible assets decreased by 7% to RON 3.6bn. Current assets meanwhile, increased primarily as a result of higher cash and cash equivalents (+70% YoY, to RON 712m), as well as higher trade receivables and other receivables (+25% YoY, to RON 433m).

On the other hand, total liabilities grew by 11% YoY to RON 4.56bn, mainly due to a 46% YoY increase in the current assets, to RON 1.4bn, which by itself was primarily driven by higher short-term loans, which increased by 234% YoY to RON 456m.