ZAGREB, 25 March (2022) - The war in Ukraine will certainly lead to an economic slowdown in Croatia this year and push up inflation, largely due to increases in energy and cereal prices, Croatian National Bank (HNB) Governor Boris Vujčić said on Friday.

"The direct impact on our economy comes from the spillover of economic effects of the war in Ukraine. At this moment we do not have direct consequences of the war, but we can quite certainly expect that the war in Ukraine will slow our GDP growth this year and increase inflation, primarily because of increased prices of energy and cereals that are largely produced in Russia and Ukraine," Vujčić told a press conference.

He added that the scale of the impact would depend on developments in Ukraine, "which at this point are hard to predict."

Rush for euro

Asked to comment on "the rush for euro", after exchange offices have been reported by the media as saying that they sell all the euros they get, Vujčić said this was nothing of significance.

He said there had been an increased demand for euro since the second half of last year due to last year's much better tourist season and the nearing of the date of euro adoption by Croatia.

According to the central bank, there was a strong increase in foreign currency deposits with commercial banks in January, picking up from 2.2 to 6.6 per cent at an annual level.

"This trend shows a strong net inflow of foreign currency into the banking system," Vujčić said.

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ZAGREB, 24 March 2022 - Banks have started with preparations or have already introduced technical solutions to secure access to the basic payments account for refugees from Ukraine, the Croatian Banking Association (HUB) has said, noting that according to available information, the number of such requests is not big.

The Croatian National Bank (HNB) on Monday informed banks based in Croatia that it expected them to provide free access to a basic payments account, including ten free-of-charge national and international transactions in kuna and euros, for refugees from Ukraine legally staying in Croatia.

The HNB said that one of the most severe consequences of the Russian invasion of Ukraine was the resettlement of a large number of civilians. In those conditions, access to basic financial services is a necessary precondition for the normalisation of life for refugees and their integration, the central bank said.

In response to a query from Hina, HUB said that it did not have detailed statistics at present but that according to available information, the number of requests for a basic payments account was not significant.

"As before, banks have started preparations or have already implemented technical solutions to enable access to the basic payments account for Ukrainian refugees," HUB said, noting that the basic payments account enables refugees to use a kuna current account and a related debit card. They can also make payments and withdraw money at bank offices or on ATMs and use internet or mobile banking.

In addition to the minimum ten free national or international transactions in kuna and euros, some banks will offer the refugees additional facilities.

So far, 9,500 Ukrainian refugees have arrived in Croatia.

Business: For more, check out our business section.

ZAGREB, 17 March 2022 - The European Union's financial regulators on Thursday warned consumers that "many crypto-assets are highly risky and speculative", the Croatian National Bank (HNB) said.

This warning comes in the context of growing consumer activity and interest in crypto-assets and the aggressive promotion of those assets and related products, especially through social media.

The warning was issued by the European Supervisory Authorities (ESAs) that consist of several regulators whose including the EBA, ESMA and EIOPA.

Consumers should be aware of "the lack of recourse or protection available to them, as crypto-assets and related products and services typically fall outside existing protection under current EU financial services rules."

"In relation to the current situation in Ukraine, and with a view to ensuring the proper implementation of the sanctions in place, the ESAs welcome the clarification by the Council of the European Union of the scope of the restrictive measures against Russian and Belarusian entities and individuals as regards crypto-assets," the ESAs said in a press release.

For more, check out our business and lifestyle sections.

ZAGREB, 15 March 2022 - Consumers should invest in the financial products and services they understand, and to do that, one should study them well - this was one of the messages of the conference "Consumer in the Digital Finance World", held in Zagreb on Tuesday.

The conference was organised on the occasion of World Consumer Rights Day by the ministries of economy and finance, the Croatian National Bank (HNB) and the HANFA regulatory agency for the supervision of financial services.

HANFA Steering Board vice-president Ilijana Jeleč said that digitalisation provided a number of opportunities for consumers as well as pitfalls.

Access to financial services is simpler but there is a large amount of information which is not easy to absorb and consumers are not always willing to sufficiently study the services they buy, she said, noting that this was especially problematic when purchasing financial services and products.

Since those services and products usually imply long-term investments, it is very important to study them before buying them, she said, mentioning also investment fraud on social networks and offers for investments in cryptocurrencies.

Jeleč said that HANFA had warned on a number of occasions that such investments were not regulated and were very speculative, advising consumers to avoid highly risky, speculative products and invest in what they understand.

Underlining the importance of consumer education, she said HANFA was investing significant effort in that regard, was cooperating with schools and universities on youth education and had launched a portal called "Novac za sutra" to inform citizens about financial services and improve their financial literacy.

Minister underlines importance of consumer protection associations

Economy Minister Tomislav Ćorić pointed to the 2021-2024 National Programme for Consumer Protection and the new law on consumer protection, to go into force on 28 May, as documents addressing problems faced by consumers living in the digital society.

He said the ministry's services last year answered more than 6,000 phone calls by consumers and replied to more than 3,000 queries.

He underlined the important role of consumer protection associations, notably in the context of the coming introduction of the euro, set for 1 January 2023, noting that the ministry had granted HRK 350,000 to strengthen their institutional capacity.

Consumer protection central principle of euro introduction bill

The State Secretary at the Finance Ministry, Stjepan Čuraj, commenting on the euro introduction bill, noted that the principle of consumer protection and the ban on unjustified price increases had central place in the bill.

Speaking of financial literacy, Čuraj said that according to an OECD survey from 2019, financial literacy in Croatia had increased mildly compared to 2015, when a survey on that topic was carried out by the HNB and HANFA.

The average grade for the financial literacy of consumers in the OECD survey was 12.3 out of 21 points or 59%, while in the 2015 survey it was 56%. However, despite the improvement, the lack of financial competence and skills was the biggest among young people aged 18-29, Čuraj said.

HNB official: Elderly most evident victims of digital revolution

Data by the European Commission show that in the first week of the coronavirus pandemic the use of digital applications in banking grew by 72%.

Commenting on this, HNB vice governor Bojan Fras said that it was interesting that those figures did not change more significantly after the relaxation of COVID-19 restrictions.

The digital revolution suits equally banks and their clients, Fras said, but noted that elderly citizens were the most evident victims of the digital revolution, being unwilling to use not only online banking services but also ATMs and bank cards.

Speaking of consumer complaints, Fras said that the HNB in 2021 received and processed 906 complaints and that none referred to digital banking services.

ZAGREB, 3 March 2022 - The head of the Croatian Deposit Insurance Agency (HAOD), Marija Hrebac, said on Thursday that the resolution of Sberbank Croatia had prevented a negative scenario, that the bank had been saved and that it is continuing to operate normally. 

Due to a rapid deterioration of liquidity, the European Central Bank announced on Monday that Sberbank Croatia "is failing or likely to fail" and notified the Single Resolution Board (SRB), the central resolution authority within the Banking Union.

The SRB adopted a decision on a two-day moratorium on the operations of Sberbank Croatia, which ended at midnight on Tuesday. A decision on launching its resolution was made before the expiry.

The Single Resolution Board decided with the Croatian National Bank (HNB) as the national resolution authority to start the resolution of Sberbank Zagreb, and the Croatian Postal Bank (HPB) became its new owner.

The HPB said on Wednesday that Sberbank Croatia was about to begin operating under the name Nova Hrvatska Banka (New Croatian Bank).

Hrebac said the crisis was resolved owing to coordinated action between national and European bodies, the role of the state, and the media having conveyed relevant messages to prevent panic.

Sberbank has been saved and is normally continuing with its operations and all its clients are safe, Hrebac said, recalling that if the bank had gone bankrupt, clients with deposits insured under the national deposit insurance scheme of up to €100,000 would have been paid, which would have required around HRK 3.8 billion. In addition to that, the bank also holds deposits amounting to more than 100,000 euros as well as deposits not covered by the deposit insurance scheme, i.e. those by financial institutions.

Asked if Sberbank's liquidation would have meant the loss of around four billion kuna of uninsured deposits, Hrebac said that they would not have been lost and that all clients would have been able to access their money because Sberbank was a good, highly capitalized credit institution.

Those clients would have obtained their deposits through bankruptcy proceedings, she said but noted that such proceedings take time.

Answering a reporter's question, Hrebac said that one could not speak about Sberbank Croatia's nationalization because the decisions were not made by the state.

The HPB paid HRK 71 million for Sberbank Croatia, and the former owners, if they want to, may appeal against the price is too low, and if found to be right, they would be paid the difference from the Single Resolution Fund, she said, underlining again the importance of accession to the Single Resolution Mechanism because it has funds worth more than €55 billion.

Had the bank gone bankrupt, what would have been left for shareholders at the end of the process, after the payment of creditors' claims, she wondered, adding that "no payments have been made to shareholders in any of the bankruptcy proceedings so far."

Sale of Croatia Banka not completed or suspended 

Asked if the process of the sale of Croatia Banka had come to a halt, Hrebac said that it had neither been completed nor suspended, stressing that the bank had in the meantime significantly stabilized its business and was meeting all regulatory demands.

"The process is ongoing," she said, recalling that two binding offers had been submitted for Croatia Banka and noting that the bank was very stable.

Croatia Banka is fully owned by HAOD, which launched its sale in July 2020.

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ZAGREB, 2 March 2022 - The Croatian National Bank (HNB) on Wednesday intervened in the foreign exchange market to preserve the kuna exchange rate, selling €171 million to commercial banks at an average exchange rate of HRK 7.562505 for one euro, the HNB said in a brief statement.

This was the central bank's first foreign exchange intervention since 16 June 2021.

The kuna strengthened against the euro by a marginal 0.0001 per cent from Tuesday.

Today's middle exchange rate, effective from Thursday, is 7.560528 kuna for one euro.

The Croatian financial system is currently enjoying record liquidity of about HRK 80 billion.

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ZAGREB, 1 March 2022 - Credit institutions in Croatia operated at a profit of HRK 5.6 billion (€750 million) in 2021, which is an increase of 108.8% on the previous year, the Croatian National Bank (HNB) said on Tuesday citing unaudited preliminary data.

In addition to the increase in profit, banking sector recovery resulted in the increase in profitability indicators so the return on assets grew from 0.6% to 1.2%, while the return on equity went up from 4.4% to 8.7%.

The effects of retained profit and targeted regulatory adjustments related to the pandemic in 2021 continue to be mirrored in the very high values of key indicators of banking system capitalisation. At the end of 2021, all credit institutions boasted total capital ratios exceeding the minimum 8%, while the total capital ratio of the banking system reached 25.6%.

Credit institutions’ liquidity measured by the liquidity coverage ratio remained high, totalling 202.5% at the end of December 2021. All credit institutions met the prescribed minimum liquidity requirements.

According to unaudited preliminary data, total assets of credit institutions increased by HRK 38.4 billion from 2020 (8.3%) and reached HRK 500.8 billion. Assets increased in most credit institutions.

At the end of last year, 20 banks operated in Croatia, employing 18,200 people.

(€1 = HRK 7.5)

ZAGREB, 19 Feb 2022 - A total of 807 banknotes of all currencies were withdrawn from circulation in Croatia in 2021, which is 77.8% more than in 2020, and 198 of them were counterfeit kuna banknotes, which is an increase of 26.1%, the Croatian National Bank (HNB) said earlier this week.

Kuna banknote counterfeiting accounts for a quarter of fake banknotes

The kuna banknote counterfeits accounted for 24.5% of all counterfeit banknotes registered last year.

The most frequently counterfeited domestic currency denomination was the 200 kuna banknote, which accounted for 98 registered counterfeit kuna banknotes, or 49.5% of the total registered kuna banknote counterfeits.

Among the 807 counterfeit banknotes of all currencies withdrawn from circulation, counterfeit US dollar banknotes accounted for 42.9%, followed by counterfeit euro banknotes (28.3%), counterfeit Swiss franc banknotes (2.4%), and counterfeit pound sterling banknotes (1.7%).

Last year, 228 counterfeit euro banknotes were withdrawn from circulation, which is a decrease of 3.8% from 2020. 50 euro banknotes accounted for the largest number of counterfeit euro banknotes withdrawn from circulation, with a share of 38.6% in the total number of registered counterfeit euro banknotes.

8,075 counterfeit coins withdrawn from circulation in 2021

A total of 8,075 counterfeit coins were also withdrawn from circulation in 2021, including one counterfeit 5 kuna coin and 8,074 counterfeit euro coins. Compared to 2020, when 817 counterfeit euro coins were withdrawn from circulation, the number of counterfeit euro coins increased by 888.3%.

The increase in the number of counterfeit euro coins withdrawn from circulation was the result of the central bank's adjusting banknote and coin processing machines and training as part of the National Training Programme.

The HNB said that the counterfeits registered last year did not cause any significant financial damage, nor did their quantity and production quality cause any disturbances in cash operations in specialised institutions or among the general public.

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ZAGREB, 16 Feb 2022 - Financial stability risks remain increased compared to the period before the crisis due to uncertainties surrounding the end of the pandemic, rising inflation, residential real estate price hikes, and geopolitical risks, the Croatian National Bank (HNB) Council concluded on Wednesday.

The economy continued to grow in the last quarter of 2021, albeit at lesser intensity than previously in the year, with industrial production increasing, while the real retail turnover and construction stayed at Q3 levels, the HNB said in a press release.

In Q4 2021, employment continued to increase while the unemployment rate dropped, making their levels better than before the pandemic. Nominal pay growth also continued to accelerate, while inflation resulted in a decrease of the real pay average.

In December, the annual inflation rate increased to 5.5% from 4.8% in November. Higher food prices contributed the most to that. Together with energy prices, they are increasingly influencing inflation.

The continuation of expansionary monetary policy continues to stimulate the fall of banks' interest rates. Keeping interest rates on the money market at zero is accompanied by a mild increase in sovereign bond yields.

At the end of last year, bank lending increased 3.9% year on year, just as it did at the end of 2020. Household lending went up from 2.1% in December 2020 to 4.5% last December, primarily as a result of a strong increase in housing loans. Corporate lending decreased from 5.6% to 2.3%.

Although a strong economic recovery enabled a gradual revocation of government aid to businesses, new waves of the pandemic continue to cause problems in global supply chains, stimulating price growth.

Hence, there is a prominent risk of long-term inflationary pressures and higher inflation than currently forecast, which could prompt a faster and stronger tightening of the monetary policies of the largest monetary markets' central banks.

Increased volatility on financial markets at the start of this year is reflected in uncertainty about inflation trends, the evolution of monetary policies and expected interest rate growth.

Residential real estate prices increasingly further from fundamentals

Last year saw a strong increase in housing loans in Croatia as well as residential real estate prices, which went up to 9% in Q3. Those prices are moving further and further from long-term trends and macroeconomic fundamentals, increasing the risk of their fall in case of economic disruptions.

Increased household borrowing is accompanied by relatively mild borrowing standards which again this year, will be supported by government subsidies. These may, at the start of the repayment period, pose a smaller burden on borrowers but when the subsidies expire, they increase repayment costs as well as vulnerability to possible shocks.

In response to the continued accumulation of cyclical systemic risks, notably the rise in residential real estate prices and housing lending, the HNB has announced increasing the countercyclical capital buffer rate for Croatia from 0% to 0.5% as of 31 March 2023.

The aim is to set aside additional capital in time in order to boost the resilience of credit institutions to possible losses due to cyclical risks, the press release said.

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ZAGREB, 8 Feb 2022 - The Croatian National Bank (HNB) said on Tuesday that in the coming days its Currency Committee would invite new proposals for the design of the national side of the €1 coin with the marten as the motif.

The HNB said that late on 6 February, the Currency Committee, as the expert body of the HNB Council in charge of the competition for the designs of the national side of euro coins, received a statement from Stjepan Pranjković whereby he withdrew his design for the marten motif and waived all rights stemming from having participated in the competition.

Today, the Currency Committee accepted Pranjković's decision and, in order to eliminate any further uncertainty, suspicion or doubt concerning the selection of the design for the marten motif, decided to invite new proposals for the design.

The HNB said that during the competition all authors were required to sign statements whereby they confirmed that their designs were original intellectual creations made solely for the needs of the competition.

The new competition for the design of the back of the €1 coin with the marten motif will not bring into question the timely manufacture of Croatian euro coins, the HNB said.

The selected designs for the national side of euro and cent coins were presented last Friday, including the marten motif for the €1 coin by Pranjković, who has a master's degree in applied arts.

Shortly thereafter, however, media reported that his design was almost identical to a marten photo by Scottish photographer Iain H. Leach, which raised the question of intellectual property infringement.

In a letter to the HNB Currency Committee on 6 February, Pranjković said that, "spurred by the unpleasant atmosphere in the media and on social networks as well as the pressures" he was exposed to, he had decided to withdraw his design for the €1 coin with the marten motif as well as waive all rights stemming from having participated in the design competition.