The Croatian banking system is stable and bank profits are strong enough to endure losses to non-performing loans, says the Croatian Banking Association (HUB) in its analysis on regulation costs and the banking system's crisis resilience
Profit is sufficiently high to cushion the blow of losses during the crisis, so the banking system will remain very stable and resistant to the crisis, HUB director Zoran Bohacek told the press on Friday. Banks want to lend the cash they have, but someone has to guarantee for or assume part of the risk, HUB says regarding announcements from the government as well as the central bank governor about inducements to finance the economy. Every country has encouraged lending to the private sector to prevent a stalemate, Bohacek said, recalling that a year ago, the HUB suggested setting up a fund or something similar to help good companies which found themselves in difficulty due to the crisis. He underlined the need to lend money for good projects. Bohacek reiterated that all elements must agree in order for interest rates to drop and that due to strong competition, banks would reduce them as soon as they felt it was possible. "A decline in interest rates can be expected by the end of 2010," he said, commenting on some banks' announcements that they might reduce interest rates soon or in a few months. Presenting the latest HUB analysis, Bohacek stressed that the reduction of monetary regulation costs had not managed at all to compensate for higher money raising and provision costs. Although banks have been operating in cheaper monetary regulation costs for several months, this change has not impacted the main determinants of bank profits. Bank profits dropped significantly, in this year's first nine months by nearly 22 per cent on the year, to a little over HRK 3 billion. However, the cause was not only a decline in net interest revenues -- by 6.1 per cent or nearly HRK 500 million in the first nine months of the year -- but mainly in higher provision costs for bad lending. Provision expenses in this year's first nine months went up 305 per cent on the year, to more than HRK 2 billion. Projections from the HUB analysis show that even in the worst crisis scenarios, capital adequacy rates remain higher than those prescribed -- 12 per cent. The banking system is sufficiently stable and robust to withstand all conceivable crisis blows, says the HUB.
