Despite the expected continued pressure on earnings, a relatively high capital adequacy of banks in Croatia, will render them stable in the coming period, according to the Croatian National Bank's latest publication "Financial Stability".
The publication gives results of stress testing of banks.
In a baseline scenario which foresees the beginning of the economic recovery in the second half of 2010, a share of non-performing loans, which was 9 percent this March, is to rise above 10 percent towards the end of this year.
In a shock scenario, which is not very likely to happen and which predicts the continuation of the recession by the end of this year and the kuna's depreciation against the euro by 10 percent, bad loans' share would reach a ratio of 16 percent.
However, even under that scenario, the banking sector as a whole would stay well capitalised despite a significant decrease in capital adequacy ratio, the central bank said in the publication. In this scenario the capital adequacy ratio would be 17.3 percent.
The share of non-performing loans increased from 7.8 percent at the end of last year to 9.0 percent this March, as a result of the continuation of deteriorating economic trends which undermined the liquidity of corporate sector and generated the fall in employment and income of households.
