May the 15th, 2023 - Croatian banks have been acting as real cash warehouses ever since the country's accession to the Eurozone back in January this year, and they're earning a pretty penny for that ''work''.

As Poslovni Dnevnik writes, it is only logical that the net interest income of Croatian banks grew because they increased their own interest on loans issued to their clients. Interest on savings however doesn't follow that trend, those figures are still barely above zero, meaning that both margins and earnings are increasing, writes Rijeka-based portal Novi list.

In addition to these usual reasons for bank profit growth, which therefore derive from "core" operations, Croatian banks have had one additional source of income since the New Year, more specifically since the Republic of Croatia officially entered the Eurozone, which wasn't there before, and the same of course concerns the European Central Bank's key rates.

More specifically, we are talking about increasingly high interest rates on deposits held by commercial banks within the central bank, and in Croatia's case this regards the Croatian National Bank. Namely, until the country entered the Eurozone, the rate for depositing liquidity surpluses with the CNB was a firm zero. With this year's entry into the Eurozone, all of the key rates of the "new monetary centre", the ECB in the German city of Frankfurt, began being applied to the domestic market as well.

It's important to explain that the ECB is constantly raising its key rates, which is why interest rates on loans are also always rising. This is what the banks are talking about when they discuss the "deposit facility rate" increasing and this also represents one of the ECB's three key rates, which specifically refers to those funds that commercial banks keep hold of with central banks.

At the time of Croatia's entry into the Eurozone back on January the 1st, 2023, this ECB rate stood at two percent. Immediately following accession, Croatian banks began to receive returns on the money they kept with the CNB.

Surplus liquidity that Croatian banks have kept in their accounts with the Croatian National Bank in the period since the beginning of the year currently amounts to around 14.4 billion euros on average.

In the aforementioned period, the European Central Bank continued the cycle of raising its interest rates that began back in July 2022, and interest rates on overnight bank deposits with the central bank rose from 2 percent at the beginning of the year to 3.25 percent in May. Accordingly, banks operating in Croatia were paid out a massive 85.6 million euros in interest in the first quarter of this year, according to the CNB.

For more, check out our dedicated news section.

April 27, 2023 - The Governor of the Croatian National Bank (CNB), Boris Vujčić, stated in the parliament that there would be no recession in Croatia, pointing out that all indicators point to a slight recovery of the economy, while the data for the upcoming tourist season are also very good.

"There was a risk of recession in the autumn of last year, but I think we have come out of it. There will be no recession, and the growth rate will be lower than the 6.3 percent in 2022," said Vujčić in the parliament during the debate on the financial situation, the degree of achievement of price stability, and the implementation of monetary policy, writes Index.

This was his answer to Davor Bernardić (Social Democrats), who was interested in whether Croatia is rushing into recession. Stating that at the moment, the risk of recession has fallen below 30 percent, Vujčić also said that all indicators point to a slight recovery of the economy, while the data for the upcoming tourist season are also very good.

Vujčić: We expected an increase in real estate prices, but not this much

Anka Mrak Taritaš (Glas) was interested in the impact of the Law on subsidizing housing loans given by APN on the increase in real estate prices. Vujčić replied that anything subsidized leads to a rise in prices. Also, the increase in prices in the country was influenced by the increased share of foreigners buying real estate in Croatia.

"We expected an increase in prices, but we didn't expect this much. It was partly motivated by the entry into the eurozone," said the governor. He considers it encouraging signs for the real estate market that the number of transactions on that market fell and that the share of foreigners on the market fell last year compared to 2021. Also, he added that this is the last cycle of APN subsidized loans, and interest rates have risen to 3.5 percent.

"All the factors that contributed to the increase in real estate prices are now turning in the other direction," said Vujčić.

For more, make sure to check out our dedicated News section.

February the 3rd, 2023 - The Croatian National Bank (CNB/HNB) purchased around two tonnes of gold back at the end of last year, and a World Gold Council analyst took to Twitter to explain more.

There have been huge monetary and political changes for the Republic of Croatia this year already, with the country being the first to ever join both Schengen and the Eurozone on the very same day. When it comes to money, or at least items of value, gold is something that the country has allegedly not really had on its radar for a great many years, until December 2022, that is.

As Poslovni Dnevnik writes, Krishan Gopaul, an analyst at the World Gold Council, tweeted that ''The Central Bank of Croatia bought almost 2t of #gold in December. Prior to that they were not reporting any gold holdings, and haven't since 2001. And this is another Eastern European central bank who had bought gold in 2022.''

While many will likely focus not on the topic of gold but on the fact that he referred to Croatia as Eastern Europe (let's not go there now), this is interesting because the country hadn't reported any gold holdings for such a long time now.

The gold was immediately forwarded by the Croatian National Bank to the European Central Bank because since January 1st, 2023, upon joining the Eurozone, the Croatian National Bank has also participated in the management of part of the ECB's international reserves, as do all other central banks of Eurozone member states.

To be clear, the statute of the European System of Central Banks and the European Central Bank stipulates that the national central banks of Eurozone member states must transfer part of their international (foreign exchange) reserves to the ECB when joining the Eurosystem. As such, the Croatian National Bank also had to transfer part of its assets as well, according to what was explained by the bank for tportal.

National central banks of the Eurozone pay money in relation to the existing balance of international reserves of the ECB, namely 85 percent of the amount in US dollars and 15 percent in gold.

The Croatian National Bank was supposed to transfer 639.9 million euros to the ECB, that is, 580.1 million in US dollars and 96 million euros worth of gold, which the central bank did not have at that time.

For more, make sure to check out our dedicated news section.

January the 24th, 2023 - Despite ongoing inflationary pressures, Valdis Dombrovskis, a Latvian politician who has served as the European Commissioner for Trade since 2020, has said Croatian Eurozone entry has occurred at the right time.

As Ana Blaskovic/Poslovni Dnevnik writes, the annual inflation rate in the Republic of Croatia more than likely peaked back in December 2022 and could continue to fall due to lower food and energy prices, Croatian National Bank (CNB) Governor Boris Vujcic said on Monday.

"Here in Croatia, the inflation trend is very similar to that in the rest of the Eurozone, but it is higher, which is in line with Eastern European countries where GDP per capita is lower, so food and energy prices have a greater effect on people," Vujcic told reporters at a seminar ahead of a government and CNB conference called ''Croatia – The 20th member state of the Eurozone".

When epeaking about Croatian Eurozone entry, Vujcic said that "we should wait for official data, but we should also realise that the prices of energy and food in the first two weeks of January are lower than before on an annual basis,'' however, he did make sure to note that the CNB doesn't actually monitor the prices of (utility) services for small businesses.

When asked whether, now that inflation is slowing down, the European Central Bank (ECB) will continue to raise interest rates with the same intensity, from 50 basis points, Vujcic said that he wouldn't like to speculate on it.

"Warmer weather than usual across Europe this winter has reduced the risk of recession in the European Union and here in the Eurozone, two months ago the main risk was possible reductions in energy sources. Now it's certain that we aren't going to have a recession, although there may be some issues which are shallow and short-lived in some countries,'' stated the governor, noting that in a calmer environment it is easier to raise interest rates.

"Although the headline inflation rate has fallen, core inflation across the Eurozone has risen. Current forecasts call for a further increase in interest rates," he said. Valdis Dombrovskis also pointed out that Croatian Eurozone entry happened at the right time regardless of inflation.

He explained that the economic benefits of Croatian Eurozone entry enable the country to borrow more cheaply, it brings about price transparency, which is especially important in tourist-oriented countries like Croatia. With the kuna tied to the euro, monetary policy in Croatia followed the monetary policy of the ECB, he believes, but did not benefit from formal membership in the Eurozone back when the kuna was legal tender.

"Because of high inflation, things are a bit more difficult at this moment in time, but the government is working on measures to suppress those issues. From a historical perspective, inflation was low when Latvia joined the Eurozone, and even then the opposition was against it precisely because of low inflation. I think Croatia's timing was good regardless," he assured. Referring to inflation across the Eurozone, he pointed out that inflation has spread throughout the Eurozone's economy and it will take time for it to calm down despite the drop in energy prices.

"The euro is a young but extremely well-established currency, the second strongest reserve global currency. Its use is expanding and that is going to continue, the euro will play a role in the development of the European Union's economy and that of all of Europe," concluded Dombrovskis.

The poll conducted by the EC in Croatia after the changeover to the euro shows that the vast majority of Croatia's residents believe that the changeover went smoothly and efficiently. As many as 88 percent believe that they are well informed about the euro, 61 percent that the transition was smooth and efficient, 81 percent had no problems when exchanging their kuna banknotes and coins into euros or withdrawing cash from banks during the first week of the use of the new currency.

For more, make sure to check out our dedicated news section.

October 18, 2022 - The Council of the Croatian National Bank (HNB) stated on Tuesday that indicators point to a slowdown in economic growth in the third quarter of this year and next year.

The economic statistical indicators indicate the possibility of a decrease in economic activity in the third quarter of 2022 compared to the previous quarter, i.e. a strong slowdown in real growth compared to the same quarter last year, according to the press release from the HNB Council session. They note that business and consumer expectations worsened, industrial production decreased in July and August compared to the second quarter, and turnover from retail trade stagnated. The employment growth slowed down, yet the administrative unemployment rate in July and August was slightly lower than in the three previous months. In the mentioned two months, the growth of nominal gross wages also slowed down, while real wages continued to decrease, the HNB states, adding that on the other hand, indicators in tourism point to record achievements in the third quarter.

In an environment of significant worsening of economic prospects accompanied by strong inflationary pressures and uncertainty regarding the prices and availability of energy sources, economic growth could slow down from the expected 5.5 percent this year to one percent next year, the HNB estimates. The annual inflation measured by the consumer price index accelerated to 12.8 percent in September, from 12.3 percent in August, the statement further states, but also adds that towards the end of the year, inflationary pressures are expected to weaken, partly due to energy price control measures. Thus, the HNB estimates, inflation in 2022 could amount to 10.3 percent on average, while in 2023 it is expected to slow down to 6.7 percent due to the effect of the base period, the gradual decrease in the prices of raw materials on the world market, the easing of stagnation in supply chains and weakening demand. 

Croatia will enter the eurozone at the beginning of next year during the European Central Bank's tightening monetary policy cycle, which will negatively affect the financing conditions of the domestic economy. However, the reduction of the required reserve ratio and the abolition of the minimum foreign currency liquidity, which the Croatian National Bank has already decided on, will strongly increase the banks' free cash resources and act in the direction of mitigating and slowing down the deterioration of financing conditions on the domestic market, the central bank says.

The coordinated global tightening of monetary policies increased the borrowing costs of most countries, while the increase in yields on Croatian government bonds was nevertheless significantly milder than in the countries of Central and Eastern Europe outside the euro area, thanks to the favorable effects of the imminent introduction of the euro. For now, bank interest rates have not increased either on new or existing loans to companies and households. However, the cost of repaying loans with a variable interest rate could gradually increase, especially for those tied to Euribor, which has already risen strongly, which will be mitigated in the short term by the legal limit on the highest interest rates on consumer loans. The apparent increase in interest rates on new housing loans, along with the pronounced uncertainty and decrease in real incomes, also increases the risk of a reversal in the residential real estate market, where prices and activity continued to grow strongly in the first part of the year.

October 16, 2022 - After two and a half years of exceptional challenges due to the pandemic, the world is facing new crises. The road ahead will probably be just as difficult, if not more, Fund Director Kristalina Georgieva said at the end of the annual meeting of the IMF and the World Bank. The IMF's strategic committee called on Russia to stop its invasion of Ukraine. The Governor of the Croatian National Bank, Boris Vujcic, commented on the forecast for the Croatian economy.

As HRT reports, the war worsened the economic crisis, slowed growth, and created inflation and energy and food insecurity. The fight against inflation and protecting the most vulnerable categories of citizens remains the main priority. This was the conclusion of financial experts.

CNB Governor Boris Vujcic commented on the forecasts for the global and Croatian economy for HTV in Washington.

"It is obvious that the economy, both globally and European, and now according to the latest high-frequency data, the Croatian economy has started to slow down. At the global level, this slowdown has been visible for some time in Europe as well; in Croatia, it is very recent, and we have practically started seeing it from September onwards. Croatia will still have a very good year. We expect growth from 5.5 percent to 5.8 percent, which is very good after 10.2 percent last year. However, next year we expect that this slowdown that we are seeing now will be fully reflected in a much lower growth rate where the economy could grow by only one percent", he said.

IMF estimates

IMF estimates are that the economy of the Eurozone could only grow by half a percent and that some countries, primarily our main foreign trade partners such as Germany and Italy, would be in recession, which would mean having negative growth rates. As for Croatia, the primary projection is that we will have a low growth rate and not a recession. However, when the practical prospects are continuously deteriorating in this situation, he said it would not be surprising if we also entered at least a technical recession, meaning two consecutive quarters of negative growth.

"Of course, inflation is the biggest problem everywhere; central banks have to tighten their monetary policies, which means raising interest rates, but also to reduce their balance sheets, which have grown a lot since the great financial crisis and represent another, I usually call it fertile ground for the growth of the inflation. Central banks will continue to do so. As of next year, we will be a member of the eurozone, so this is primarily a concern of the European Central Bank, where I will co-create that policy. And as for the governments, this winter, they are mainly limiting the prices of electricity, thermal energy, and natural gas. Next year, we will see how things will develop, he said.

Entry into the eurozone

"Everyone congratulates us; they think it is very good for Croatia and will help Croatia significantly in this crisis. And we can already see that. We see that Croatia is doing better in this crisis than other EU countries that are not on the way to become members of the eurozone or existing members. Our rating is growing; we don't have to spend reserves on intervention in the foreign exchange market, which we had to do in the spring of 2020." He concluded that our interest rates are significantly lower.

For more, make sure to check out our dedicated Politics section.

July the 17th, 2022 - All hands are firmly on deck with employees having to work hard in three shifts to make sure the new Croatian euro coins are going to be ready by the end of this year for the official introduction on the first day of 2023.

As Poslovni Dnevnik writes, the governor of the Croatian National Bank (CNB), Boris Vujcic, recently said that the current crisis we're in due to rising inflation and the ongoing war in Ukraine best illustrates the advantage of the Republic of Croatia finally joining the Eurozone.

"The markets already know this, they know exactly what the exchange rate will be here in Croatia, and because of that, we didn't even see any pressure on the weakening of the kuna, nor did we have to intervene or raise our interest rates. Other European Union (EU) member states that are not part of the Eurozone, such as Hungary, Poland, the Czech Republic and others, have already experienced pressure on their own respective currencies and interest rates, which are rising very strongly, which spills over into the home loan and business loan market, while in Croatia, they're thankfully still at a historic low,'' explained Vujcic

''If we weren't set to officially join the Eurozone, the situation would be different in this country,'' he noted.

The governor also announced that the minting of Croatian euro coins will start on Monday. The process, as he said, is logistically demanding, because Croatian euro coins all need to be minted by the end of this year, and it will have to be done in three shifts.

"We're on the verge of minting all of the Croatian euro coins," he said, adding that the second major demand will be the withdrawal of the current kuna banknotes from use.

''As for the conversion from the Croatian national currency to euros, it will be automatic from January the 1st, 2023, and all loans that aren't in euros will remain at the exchange rate that had already been established. Those who have loans with a fixed interest rate will see everything remain the same as it was when the kuna was being used, and those who have a variable rate will see it adjusted in such a way that the consumer doesn't end up in a worse position after the conversion than they were before it,'' he explained.

''Consumers are going to remain in the same situations as they were before,'' assured Boris Vujcic.

For more, make sure to check out our dedicated politics section.

July the 15th, 2022 - Croatian Eurozone accession is now very rapidly approaching, but with all of these changes and upheavals on the way, should you take out a loan now in Croatian kuna, or wait until after January the 1st, 2023?

As Poslovni Dnevnik writes, the Croatian National Bank (HNB/CNB) said that "Croatian Eurozone accession has no implications for the riskiness of kuna loans". Regarding interest rates - if the interest rate is fixed, it will remain fixed, and if the interest rate is variable, it will remain so, they claim.

"On the day of the introduction of the euro, the principal amount of the kuna loan will be converted into euros at a fixed conversion rate to be determined by the Council of the European Union without any cost to the bank's client," they explained from the CNB for N1.

"Croatian Eurozone accession has no implications for the riskiness of loans denominated in euros. In the case of euro loans, which also applies to kuna loans with a currency clause in euro, there will be no need to recalculate the principal amount on the day of the introduction of the euro because it's already expressed in euros. When it comes to the interest rate, the approach is going to be the same as it is with kuna loans: if the interest rate is fixed, it will remain fixed, and if it's variable, then it remains variable," they added.

What will happen to interest rates?

Financial analyst Andrej Grubisic said that the conversion rate itself is no longer the primary category, but interest rates are...

"The exchange rate at which the kuna will be converted into euros is already known, it will be at a rate of 7.53450, so the exchange rate difference is de facto negligible. I don't see any room for serious arbitrage or calculations in this regard. The bigger question is what the price of an apartment will be six months from today, not what the exchange rate will be. "Whether an apartment (per square metre) will cost several tens of euros more or less is a far more important question at this moment in time," said Grubisic, adding:

"Another thing is whether six months from today the interest rates will be slightly higher than they are today.''

Grubisic also noted that the president of the Croatian Association of Banks, Zdenko Adrovic, recently stated that he wouldn't be surprised if, in the foreseeable future, interest rates are one to two percentage points higher than they are today. Let us remind you that Adrovic told N1 Studio live that the first increase in interest rates by 0.25 percent will come in July, and the next will come very soon after that, in September, also by 0.25 percent.

"Given the fact that inflation is high, we should expect that there will be an increase in interest rates", Grubisic said, before adding: "I don't think it's unrealistic to think that in 12 to 18 months from today, we'll have one or 1.5 percent higher interest rates than we have today.” He also pointed out that "even today there are pressures for interest rates to go up".

"Therefore, people shouldn't be surprised if the interest rate on a housing or other loan in six months is 0.3 or 0.5 percent higher than it is today, because we were in a period of extremely low interest rates, unusually low ones, which is unsustainable if you have inflation that is higher than the interest rate," said Grubisic.

He was asked if this means that if we can expect higher interest rates in the near future, it is better for people to take out loans now, while the kuna is in force, than to wait for Croatian Eurozone accession on the 1st of January next year? His answer was a clear one: "Exactly."

“It's wise to go for a fixed rate loan and avoid any form of calculation or uncertainty that comes from variable interest rates. So, if we're talking about housing loans, given that these are obligations which are fixed for a long period of time, nobody can tell you what will happen in five, let alone in ten or fifteen years. If today it seems to you that it's slightly higher than the existing variable interest rate, it may be today, but in the future it may change. That way, you get some certainty and you know what you can count on, there's no uncertainty with fixed interest rates," Grubisic concluded for N1.

For more, make sure to check out our dedicated politics section.

ZAGREB, 12 July 2022 - After the Ecofin on Tuesday adopted final three legal acts enabling Croatia to introduce the euro as its currency on 1 January 2023, the national bank (HNB) governor said that the euro area membership would produce concrete, direct and lasting benefits for Croatia's citizens and enterprise sector.

European Union's Economic and Financial Affairs Council (Ecofin) today formally endorsed Croatia's entry into the euro area on 1 January 2023, and one of its three decisions sets the conversion rate between the euro and the Croatian kuna at 7.53450 kuna for 1 euro. The rate corresponds to the current central rate of the kuna in the exchange rate mechanism (ERM II).

The decisions followed after the European Commission assessed that Croatia had met all the convergence criteria and after the positive opinions of the European Parliament and the European Central Bank (ECB).

The HNB Governor Boris Vujčić recalls that the changeover to the euro will eliminate the foreign exchange risk and this would also make Croatia more attractive and safer in the times of crisis.

He described the euro as a symbol  of the European unity.

"I am sincerely proud of this great Croatian success," Vujčić was quoted as saying in a press release issued by the HNB.

The press release quotes Prime Minister Andrej Plenković as saying that "Croatia becomes a member of the euro area on 1 January 2023!"

Thus we have achieved a strategic goal, he underscores.

The euro adoption will make our economy more resilient and raise the living standards of our citizens in the long run," said the PM.

"Being a part of the euro area brings more security to our citizens in this crisis. We have diligently worked on this project as we firmly believe that it is in Croatia's national interest to enter the euro area."

For more, check out our politics section.

July the 4th, 2022 - Croatian Eurozone accession is looming, with the date on which the kuna will be sent to the history books being marked out as the 1st of January, 2023. There are a lot of practical and logistical issues to now tackle, and filling the country's ATMs with euros instead of kuna is just one of them proving to be a challenge.

As Poslovni Dnevnik writes, rapidly approaching Croatian Eurozone accession requires very many adjustments. While there won't be much work in the conversion of cashless payments, cash payments bring a series of challenges for everyone - from people to banks, companies and shops, reports HRT.

Most of the total of Croatian 4,700 ATMs, which are of course all active during the winter months, will have to be adapted for euro banknotes in the very last weeks of December, making them unavailable for Croatian kuna withdrawals.

Filling ATMs with euro banknotes will be an extremely demanding job operationally speaking. In most ATMs, certain parts will have to be physically replaced.

"The whole process of adapting Croatian ATMs starts with the adaptation of the cassettes themselves, in which the banknotes come out, since the euro banknotes have different dimensions than the kuna banknotes have. As we have a lot of ATMs across the Republic of Croatia, this is going to be a rather long-term process where all the ATM cassettes should be adapted,'' explained Tihomir Mavricek, executive director of the Cash Sector of the Croatian National Bank (CNB).

The problem is that at most of Croatia's ATMs, the adjustment to euros means that they will not be available for the withdrawal of kuna for a certain number of days, and the uncomfortable timing comes in the form of it being just before the Christmas season where there are significantly increased levels of consumption. On top of that, not all ATMs will be ready for euros by the date of Croatian Eurozone accession, ie the 1st of January, 2023.

"During the month of December, we'll visit more than 60% of the ATMs maintained by our company in the field, and prepare them to work with the new currency. The first euros will be available to people for withdrawal at certain ATMs in Croatia as early as January the 1st, 2023, according to the criteria of regional coverage and the frequency of use of those ATMs, which are determined by the banks," the Payten company announced.

Not all ATMs are equal, however, and those within the OTP banka system can be remotely ''induced'' to pay out either kuna or euros.

"All of our ATMs will be in operation for withdrawing money every day during the month of December, and at the same time they'll be ready to pay out euros from January the 1st, 2023," OTP banka announced.

Despite intensive preparations, it will still be technically impossible to avoid days without interruption of withdrawals of kuna or euros at most ATMs as Croatian Eurozone accession gets closer, but the CNB has assured that everything related to this process must be published and made accessible to people on the banks' official websites.

"Even if we're in a situation in which not all ATMs are available for euro withdrawals, people don't need to worry about it, since during the first two weeks following Croatian Eurozone accession it will remain possible to pay for things in both kuna and euros in shops, while merchants are obliged to return the rest in euros, of course, wherever it's possible to do so," explained Mavricek.

While cash payments during the last weeks of December and the first weeks of January will be difficult for many people, POS systems and card payments should continue being carried out without any interruptions or issues.

For more on Croatian Eurozone accession and how it's going to affect daily life, make sure to keep up with our politics and lifestyle sections.