During H1 2024, ZABA recorded NII growth of 15% YoY, NFCI increase of 10%, a net banking income increase of 15% YoY, and a net income to majority of EUR 304m, an increase of 22% YoY.

Yesterday, ZABA published its H1 2024 results, highlighting several key financial metrics. In H1, ZABA’s NII grew to EUR 304m, a 15% increase YoY. Although the bank did not provide specific details on this growth, an analysis of its balance sheet and prevailing industry trends offers us some insights. Some of the main areas to pay attention to include cash and cash balances with central banks which still yield significantly higher returns than the historical average, other demand deposits which have also recorded growth in the margin, as well as financial assets at amortized costs, which includes loans to customers and other banks, as well as bonds held by the Group.

Deposits held at the ECB yielded a return of 3.75% based on the ECB key deposit interest rate effective from June 12, 2024, which decreased by 34% YoY to EUR 3.54bn. This reduction was expected due to the now already calculated 25 bps rate cut from 4%, but also future expected rate cuts. Furthermore, ZABA managed to record a 10% increase in loans to customers to EUR 13.4bn, meaning that a lot of the cash held at the Central Bank was transferred towards customers.

Besides loans and advances to customers, a part of the financial assets at amortised cost, ZABA also recorded an increase in debt securities (bonds) by 11% YoY to EUR 1.6bn, while loans and advances to credit institutions also recorded an even more significant growth of 181% to EUR 3.1bn. This larger asset base, in combination with still elevated interest rates, leads to a 32% increase in interest income.

On the other hand, interest expenses grew by 147% YoY to EUR 114m, outpacing the growth in interest income. This increase was influenced by a slight 0.1% decrease in customer deposits from the beginning of the year, likely prompting ZABA to raise deposit interest rates to attract new deposits. Additionally, the issuance of new debt securities, amounting to EUR 283.6m – a 187% QoQ increase – contributed to higher interest expenses as corporate bonds with the current key interest rates still yield a strong premium.

Meanwhile, net fee and commission income rose by 10% YoY to EUR 114m, reflecting continued customer engagement with ZABA’s services, a notable achievement given the stagnation or decline in this category for other banks. However, given ZABA’s market leadership in Croatia, this was to be expected. Overall, these factors led to a net banking income of EUR 516.5m, a 15% YoY increase. Moving on, operating expenses grew by 4.9% YoY to EUR 170m, while impairments and other provisions increased by 16.7% YoY to EUR 21m, implying a slightly higher cost of risk YoY. As a result of these developments, ZABA reported a net income to majority of EUR 304m, an increase of 22% YoY.

ZABA key financials (H1 2024 vs. H1 2023, EURm)

Source: Zagrebačka banka, InterCapital Research

Taking a quick look at the balance sheet, total assets grew by 5% YoY to EUR 24.5bn, driven primarily by the increase in loans, advances, and debt securities, despite a decrease in cash and central bank balances. Total liabilities also rose by 5% YoY to EUR 22bn, mainly due to the new debt securities issuance. Meanwhile, the company’s equity increased by 5.5% YoY to EUR 2.5bn, primarily due to higher retained earnings.

At the end of June 2024, the NAV of Croatian mutual funds increased by 3.2% MoM and 36% YoY, reaching EUR 2.76bn. This marks the third consecutive month of YoY growth exceeding 30% YoY, a trend not seen since early 2017, indicating strong momentum in NAV development. Despite this increase, with this increase, the NAV is “only” 11% below its pre-COVID-19 peak.

According to the latest report by the Croatian Financial Services Supervisory Agency the NAV of Croatian mutual funds saw substantial growth in June 2024, rising by 3.2% MoM and 36% YoY, reaching EUR 2.76bn. After April’s 32% and May’s 34% YoY growth in NAV, June finally broke the record set back in January 2017 (35.5%) with a 36% YoY increase in NAV. This growth narrows the gap to the pre-pandemic peak, now only 11% below it.

To understand this growth, it is essential to examine the primary drivers: changes in the underlying value of assets and net contributions to the funds. In June, net contributions totaled EUR 85.5m, mainly driven by investments in cash funds, which accounted for EUR 62.9m. Other funds category followed, with net contributions of EUR 19.7m. Equity fund also recorded a noteworthy increase in net contributions, at EUR 11.3m. Meanwhile, on the TTM basis ending in June, net contributions reached EUR 640.1m, compared to EUR -147.2m in the same period last year, indicating improved retail sentiment, confidence, interest in investing, and a more positive outlook for the future.

Net contributions to the Croatian mutual funds (January 2021 – June 2024, EURm)

Source: HANFA, InterCapital Research

In terms of absolute change, the NAV increased by EUR 729.2m YoY and EUR 84.3m MoM. Notably, 87.8% of the annual growth stemmed from net contributions. Furthermore, on the MoM basis, net contributions amounted to EUR 85.5m, which is EUR 1.2m higher than the growth in NAV, indicating that on a monthly basis, NAV growth was driven only by contributions, while the values of assets slightly decreased.

Moving on to the changes in the assets themselves, on the MoM basis, money market holdings saw the largest increase of 31.1%, or EUR 51.9m, followed by shareholdings, which rose by 4.9%, or EUR 22.2m. Other categories combined, i.e. other assets, receivables, investment funds, and bonds, grew by EUR 19.8m, while deposit and cash holdings decreased by 0.8%, or EUR 3.2m. Meanwhile, on a YoY basis, money market holdings surged by 713%, or EUR 191m, followed by shareholdings, which grew by 43.5%, or EUR 143m. This, however, was not enough to outmatch bonds, which recorded the largest absolute increase of EUR 220m.

Total assets of the Croatian mutual funds (January 2015 – June 2024, EURm)

Source: HANFA, InterCapital Research

Regarding securities and deposits, in June 2024, they amounted to EUR 2.72bn, declining by 3.3% MoM but growing 39% YoY. Of this, EUR 1.8bn, or 66.3%, was held in foreign securities and deposits, while the remaining 33.7% was held domestically. The domestic segment experienced a 0.7% MoM decrease and an 11% YoY increase. Meanwhile, the foreign segment grew on both bases, at 6% MoM and 60% YoY, respectively.

Lastly, looking at the current asset structure of the mutual funds, the largest share was held by bonds at 52.3%, representing a decrease of 1.42 p.p. MoM and 7.95 p.p. YoY, followed by shares at 16.9% of the total, growing by 0.25 p.p. MoM and 0.92 p.p. YoY. Next, deposits and cash accounted for 14.5% of the total, declining by 0.60 p.p. MoM but growing by 3.29 p.p. YoY. Lastly, money market and investment funds holdings accounted for 7.8% and 7.6% of the total, respectively. The money market segment increased by 1.66 p.p. MoM and 6.53 p.p. YoY, while investment funds had a 0.11 p.p. increase MoM and a 2.64 p.p. decrease YoY.

Current AUM of Croatian mutual funds (% of the total, June 2024)

Source: HANFA, InterCapital Research

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