The new government's first task will be to maintain Croatia's credit rating, otherwise the price of borrowing will go up, which will reduce the likelihood of investment and may make household and corporate loans more expensive, Croatian Banking Association (HUB) leaders told the press on Tuesday.
The credit rating is at risk and preventing its downgrading is most important, HUB director Zoran Bohacek said, adding that this could be done by strictly carrying out fiscal consolidation and structural reforms.
The HUB believes that 2012 will not bring significant economic growth and that it should be "weathered" and that conditions should created for making a step forward in 2013.
HUB leaders expects a stagnation of retail banking and a mild growth of corporate loans.
The association believes that in principle, interest rates should not rise, unless banks' sources of financing become more expensive, which is possible if Croatia's credit rating is downgraded. March will be crucial, as agencies will release their ratings of Croatia and other countries.
According to an HUB analysis, the costs of bank regulation did not change significantly this year. The rate of the minimum currency assets was reduced in March from 20 to 17 per cent, while the rate of reserve requirements went up from 13 to 14 per cent in October which, according to the HUB, shows that regulation was not significant for interest margins and bank profitability.
However, bank profitability stopped growing in the third quarter, declining 1.7 per cent on the year. Return on equity and return on assets in Q3 2011 began stagnating after four quarters of consecutive growth. Only more detailed indicators on profitability for Q3 will show if the stagnation of those returns was the result of more expensive sources of financing, higher loan loss provision costs or losses on securities.
