Croatia: National Bank restricts credit growth - 12% limit for 2007
Despite a number of administrative measures introduced since 2003with revisions and new provisions in 2006, credit growth has remainedstrong, reaching a growth rate of 23-24% in 2006. Recently the CroatianNational Bank (CNB) placed strong emphasis on its readiness to reducethe rapid domestic credit growth. From 1 January more strictregulations for credit growth will apply to banks operating in Croatia.The CNB announced an annual 12% credit growth limit for 2007 - half ofthis year’s growth figure - for commercial banks.
Mandatory Croatian National Bills above 12% credit growth
The new measure called "Decision on Mandatory Croatian NationalBank Bills” creates additional marginal lending costs for banks iftheir credit growth surpasses the limited growth level. The annual 12%threshold is monitored via monthly reporting periods. In case of fastergrowth banks have to buy 1-year CNB bills in amount of 50% of the loanvalue above the 12%. The liquidity bills have to be kept on a centralbank account, are not tradable and have to be held till maturity. TheCNB bills will bring a 0.75% yield. This is much below the market ratesof interest (1y T-bills are officially quoted at 3.90% while the 1mZIBOR is at 4.48%) and makes additional lending much more expensive forthe bank and the client - at the margin if the 12% limit is surpassed.Thus the new measure has the same effect like a strict extra reserverequirement if the annual credit growth limit is transgressed.
The CNB clearly stated that the new measure ought to curb thestrong credit growth that causes growing external imbalances (highlevel of external debt around 85% of GDP at the end of 2006 and acontinuous widening current account deficit around 7% in 2006). As theelection year 2007 creates fiscal risks and the government alreadypresented a budget with stronger expenditure growth and stronger publicconsumption than expected the new monetary policy measure should limitthe indebtedness of the Croatian economy.
Market reactions, macroeconomic implications
As markets are calm right now the announcement of the newadministrative provisions did not cause any significant reaction.However the measure is quite strict as we expected a credit growth ofabout 18% in 2007. A more restrictive monetary policy and theuncertainties of the election year should go in line with ourexpectations of a slightly weaker economic growth closer to 4% ratherthan government forecast of 4.5% in 2007. Moreover a slower creditgrowth might reduce appreciation pressures on the kuna - which weexpect in the process of Croatian EU convergence - in 2007.
In the end the effectiveness of administrative measures like thesketched new provisions in Croatia should not be overestimated. One hasto know from experience that similar measures in other SEE countriesdid not turn out to be very effective, because credit institutionsfound legal balance sheet means to bypass such regulations at alltimes.
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Correspondence via e-mail is primarily for information purposes.Raiffeisen International neither makes nor accepts legally bindingstatements unless otherwise agreed to the contrary.
Quelle: RZB
Despite a number of administrative measures introduced since 2003with revisions and new provisions in 2006, credit growth has remainedstrong, reaching a growth rate of 23-24% in 2006. Recently the CroatianNational Bank (CNB) placed strong emphasis on its readiness to reducethe rapid domestic credit growth. From 1 January more strictregulations for credit growth will apply to banks operating in Croatia.The CNB announced an annual 12% credit growth limit for 2007 - half ofthis year’s growth figure - for commercial banks.
Mandatory Croatian National Bills above 12% credit growth
The new measure called "Decision on Mandatory Croatian NationalBank Bills” creates additional marginal lending costs for banks iftheir credit growth surpasses the limited growth level. The annual 12%threshold is monitored via monthly reporting periods. In case of fastergrowth banks have to buy 1-year CNB bills in amount of 50% of the loanvalue above the 12%. The liquidity bills have to be kept on a centralbank account, are not tradable and have to be held till maturity. TheCNB bills will bring a 0.75% yield. This is much below the market ratesof interest (1y T-bills are officially quoted at 3.90% while the 1mZIBOR is at 4.48%) and makes additional lending much more expensive forthe bank and the client - at the margin if the 12% limit is surpassed.Thus the new measure has the same effect like a strict extra reserverequirement if the annual credit growth limit is transgressed.
The CNB clearly stated that the new measure ought to curb thestrong credit growth that causes growing external imbalances (highlevel of external debt around 85% of GDP at the end of 2006 and acontinuous widening current account deficit around 7% in 2006). As theelection year 2007 creates fiscal risks and the government alreadypresented a budget with stronger expenditure growth and stronger publicconsumption than expected the new monetary policy measure should limitthe indebtedness of the Croatian economy.
Market reactions, macroeconomic implications
As markets are calm right now the announcement of the newadministrative provisions did not cause any significant reaction.However the measure is quite strict as we expected a credit growth ofabout 18% in 2007. A more restrictive monetary policy and theuncertainties of the election year should go in line with ourexpectations of a slightly weaker economic growth closer to 4% ratherthan government forecast of 4.5% in 2007. Moreover a slower creditgrowth might reduce appreciation pressures on the kuna - which weexpect in the process of Croatian EU convergence - in 2007.
In the end the effectiveness of administrative measures like thesketched new provisions in Croatia should not be overestimated. One hasto know from experience that similar measures in other SEE countriesdid not turn out to be very effective, because credit institutionsfound legal balance sheet means to bypass such regulations at alltimes.
This message and any attachment ("the Message") are confidential.If you have received the Message in error, please notify the senderimmediately and delete the Message from your system, any use of theMessage is forbidden.
Correspondence via e-mail is primarily for information purposes.Raiffeisen International neither makes nor accepts legally bindingstatements unless otherwise agreed to the contrary.
Quelle: RZB
Letzte Änderung: 15.01.2007 durch Sabine Gess
