The Croatian central bank has delivered it’s “whatever it takes” moment yesterday when a total of 4.075b HRK of local bonds were purchased to support the financial system. We’re not quite out of the woods yet, but together with ECB delivering a package of its own yesterday to support the periphery yields, it might be that the worst is behind us. More about it in this brief article.
Croatian central bank decided this week to step in and support the stability of financial markets, this time by purchasing a total of 4.075b HRK of short end (H217A, H22A, H227E) and long end (H327A, H34BA, H403E) bonds. The size of the ticket tells enough about the intensity of the selling pressure coming from the insurance companies, asset managers and banks. Since this monetary operation was scheduled in advance and was significantly larger compared to Friday’s inaugural outright purchase, it’s quite likely that the operation will manage to offset the selling pressure we have seen over the last weeks. In more simple words, since the operation was very well communicated to the public and since it included a broad spectrum of financial institutions (banks, insurance companies, asset managers and pension funds), it’s quite likely that most of the sellers trimmed their positions according to their liquidity needs and that the selling pressure should significantly weaken in the coming days.Outright monetary purchases were exactly what the market needed to stop long term CROATE yield from skyrocketing since other instruments of monetary policy were unable to touch the long-term yields. From this perspective, direct purchases were the only thing to do in order to prevent a complete collapse of the financial system.
Speaking about the liquidity put in the system by the central bank in last seven days alone, it’s worth mentioning that it exceeds 8.1b HRK (213m HRK on Friday’s outright purchase + 3.8b HRK on Monday’s structural operation + 4b HRK yesterday), which is clear message that the central bank will do everything within its limits of power to support the stability of the financial system. This is definitely good news for financial institutions in general that are trying to get liquidity from every source possible. The notion that central bank is prepared to play its part in bridging the liquidity squeeze that is global in nature assures that the financial markets will gradually start returning to their normal way of functioning.
Speaking about the context of the operation, we could say that it came at just the right time since global scramble for cash unwinds before our eyes. This morning, the nominal yield on US 3-month paper went into negative for the first time ever (USGG3M Index @ -0.13%), while the ECB announced a 750b EUR heavy PEPP (Pandemic Emergency Purchase Programme). This package is a breath of fresh air for the euro area periphery, which suffered from both harsh fundamentals and illiquidity. It’s worth bearing in mind that yesterday we saw 10Y Italy trading at Bund+278bps (at moments even wider), while this morning the spread has nosedived by at least 80bps to levels just below 200bps. Greece rallied massively with 10Y yield dropping from around 4.00% to just above 2.15% – we could say that the ECB stimulus is just what the Mediterranean country was looking for.
In a nutshell, asset managers are clearing their wounds and hoping that the worst is behind us. Although lockdowns in European countries have just began, it might be that the liquidity on the financial markets might start improving now that the support packages are being delivered. Only time will tell.
Croatian Prime Minister, Andrej Plenković, presented a set of measures to aid the economy worth more than HRK 30bn.
Yesterday, the Prime Minister of Croatia presented a set of measures in the Croatian Parliament to aid the economy.
To
aid the economy during the epidemic, the government has prepared, at this
stage, 63 measures, through 19 laws and a series of by-laws.
The government has prepared the
following measures:
- Delay of income tax, contributions – for pension and health insurance – for three months, with the possibility of extension for another three months.
- Interest-free loans to municipalities, cities and counties, Croatian Health Insurance Fund (HZZO) and Croatian Pension Insurance Institute (HZMO) up to the amount of income tax, surtax and contributions whose payment has been deferred and/or installment payment is approved.
- Croatian Bank for Reconstruction and Development (HBOR) and the commercial banks, are ready for the moratoriums / postponement of credit obligations, to provide working capital and funds for reprogramming existing loans. For example: liquidity loans to businesses to finance wages, overheads and other basic operating expenses.
- The government will finance 100% of the cost of the minimum net wage per full-time employee provided the employers do not lay off workers. Employers can on top of that pay an additional part of their salary, which is encouraged through measures to delay the payment of health and pension contributions and the payment of taxes.
Sectoral measures:
- Postponement of payment of tourist membership fees and tourist taxes
- Extend the duration of the “permanent season worker” by 6 months
- Increase of funds for micro loans, working capital for micro and small business up to EUR 25,000, with a grace period of 12 months
- Accelerated payments of up to 75% of claims for payments for EU projects
- Postponement of rent payment to tenants and users of state-owned agricultural land (rent payments for land on which camps are located)
Here you can find the announcements of Romgaz and DIGI Communications regarding the Covid-19 impact on the company’s operations.
ROMGAZ
At the moment, Romgaz operates normally and has not evidenced the impact of a pandemic on its business performance. The Company is taking all measures required to secure employees’ safety and business continuity following the guidelines given by authorities. The staff can work in shifts or at home to mitigate the risk of a virus outbreak.
However, due to a possible contraction in economic activity caused by Covid-19, Romgaz could be expecting lower consumption of natural gas in the short term, so the Company is considering injecting the gas in storages and postponing deliveries towards winter.
From the production viewpoint, the Company intends to operate normally. In the case of the spread of disease among employees in one of Romgaz’s production areas, the Company already has alternatives to transfer production to closer areas.
Investments might be affected by delays since suppliers are directly affected by the degree of emergency in their business environment. Closure of the border makes transportation of raw materials and equipment increasingly difficult. In addition, the lower operating activity of corporations, lack of contractors’ employees due to isolation or quarantine, logistic constraints generated by the state of emergency may slow down the Company’s operations.
Romgaz is performing all activities to succeed in overcoming this crisis and restricting the adverse effects on the Company’s business on the entire economy.
DIGI COMMUNICATIONS
Taking into account the current unpredictable environment, the Company continues to take steps to provide the highest level of service and business continuity. The company notes that all customer channels remain open at this time (shops, cashier offices, call centers etc.), while implementing specific measures for safeguarding the health of customers and employees. The only exceptions are Italian and Spanish market where the company has direct commercial presence (which are closed in accordance with the relevant public authorities requirements).
The company further states that they have developed and upgraded their business continuity plans to respond promptly and efficiently to any disruptive incidents during the COVID-19 outbreak, while safeguarding the health of their employees and minimizing the impact on the delivery of services.