Q3 earnings season opened the door on the Zagreb Stock Exchange, traditionally with financial institutions – banks, to be more precise. Today, we will look into the Q3 financials of Croatia’s biggest bank, Zagrebačka Banka.
Zagrebačka Banka reported operating income of EUR 789m, with operating expenses standing at EUR 257m, resulting in an operating profit of EUR 525m. Operating income remained roughly on the same page as in the same period of 2024, increasing 0.8% YoY. Breaking down income segments, the most important one – net interest income – decreased by EUR 25m, representing a decline of 4.6%. This was, of course, expected with key interest rates of the ECB in a downtrend, currently at 2.00–2.15%, after starting the year at 3%.
To put net interest income into context, the ECB began the strongest tightening cycle in July 2022, and from then until September 2023, rates rose by 400bps, ending the era of negative rates. The reason for that is clear: the Russia-Ukraine war boosted energy prices, which in turn pushed inflation in the Euro Area to 10.6% in October 2022. Wages were rising – a trend still visible in Croatia – and demand remained strong. But this was not the only cause; there were also large fiscal expansions during and after the COVID pandemic stimulus, along with fiscal measures to shield consumers and firms, such as energy price caps, subsidies, tax cuts, and price floors.
In conclusion, with that rise in floor rates, the net interest margin increased, while deposit rates did not rise as quickly. That created a period of very strong profits and the discussion about “extra-profit” taxes on banks. Now that the situation has cooled down, with Euro Area inflation throughout 2024 hovering around 2.5% and now in 2025 around 2%, the ECB started monetary easing in June 2024 and, by June 2025, had cut rates by 200bps – currently standing at 2%, with analysts expecting them to remain at that level through 2026, according to Bloomberg.
Looking at the whole system, according to the Croatian National Bank, the average monthly weighted interest rate in the Croatian banking system also provides some perspective. At the end of August, the latest available data show that overall interest on deposits stood at 1.7%, while in the same period last year it was 3.09%. The household deposit rate in August 2025 was 1.3%, compared to 1.78% in August 2024, while for the non-financial sector, this year it is 1.79% compared to 3.28% in 2024. When it comes to loans, the average housing loan rate stands at 2.98%, down 77bps (from 3.75%) compared to August 2024. Consumer loans are at 5.5%, down from 6.05%, while corporate loans show a similar trend, now at 3.59%, down from 4.71%. Considering all this, a decline in net interest income is fully expected and will likely continue in the next quarter as well, since we are exiting a high-rate era and entering a period of narrowing net interest margins.
ZABA key financials (Q3 2025 vs. Q3 2024, EURm)
Source: ZABA, InterCapital Research
Back to ZABA, turning briefly to the balance sheet, total assets increased by 8.8% from the start of the year, or EUR 2.29bn, now totalling EUR 28.24 bn, signalling higher activity. Loans grew 11.8% from the start of the year overall, with the key segment – loans and advances to customers – up by 11.8%. This means that even though new loans were being issued, they were issued at lower interest rates, leading to an overall decline in net interest income. ZABA noted that deposits from customers remain the key source of funding, reaching EUR 21.76bn. The increase of EUR 1.02bn (+4.9%) was primarily driven by retail deposit growth, reflecting the broader trend of rising deposit accumulation in Croatia. Deposits from credit institutions also surged to EUR 1.48bn, up 77.8%.
Back to the P&L, net fee and commission income amounted to EUR 194m, increasing by 12.1%. While details are not provided, a higher number of card transactions and higher fees on certain services were likely the main drivers. This should not be surprising – when one segment is declining (net interest income), another needs to compensate. Net trading and other income and expenses amounted to EUR 76m, up by EUR 10m (+15.2%). Overall, total operating income amounted to EUR 789m, up 0.8% YoY.
Operating expenses came in at EUR 257m, flat compared to the same period last year, with impairments of just EUR 1m, down 98%. Profit before tax reached EUR 530m, while net profit stood at EUR 443m, down 2.9% YoY.
Overall, Q3 results are indicative of a trend that has been present in the banking sector for some time now. The decrease in key interest rates, while not immediately reflected, began to take effect during 2025. New loan issuances are occurring, but at lower interest rates, resulting in slower profitability growth. This trend is expected to continue going forward.