Better use of EU funds to promote growth

Published: 21/10/2016

GDP growth will probably be faster than expected under projections made several months before and this year it might reach some 2.5% or even more. In the years that follow, the growth might hold steady at a similar level, but such projection is accompanied by a high degree of uncertainty, said Vedran Šošić, Vicegovernor of the Croatian National Bank at the conference "Day of Croatian financial institutions", hosted by the Croatian Chamber of Economy (CCE) on 20 October 2016.

Following the presentation by Maximilien Lambertson, the Economist Intelligence Unit Analyst, about macroeconomic trends and expectations in the EU and the Republic of Croatia, the Vicegovernor stated that increased use of EU funds might continue to contribute to growth acceleration.

Vicegovernor Šošić explained the trends affecting financial stability and stressed that fiscal sustainability had until recently posed the key risks to financial stability, but pointed that unexpectedly good fiscal results in the previous year and very favourable fiscal developments this year considerably reduce this risk. Reduced risk premium also affects the domestic interest rates. All this, coupled with growth revival, improves the picture of debt sustainability of all the sectors of the economy and reduces risks. 

He noted in particular the issue of exchange rate risk, which, though structurally high, has also been falling due to the improvement in kuna lending and external debt reduction. By contrast, the interest rate risk has grown, due to an increased share of loans with a variable interest rate following conversion of loans in Swiss francs. He also pointed to the fact that, according to Croatian National Bank research, the share of NRR as the reference rate in loans to households exceeds the shares of EURIBOR and LIBOR, earlier preferred by credit institutions.  He stressed the role of the Croatian National Bank in informing and educating consumers about the risks arising from individual loan elements, noting that the final decision on specific loan parameters always rested with the consumers.

Liquidity risk is seen as an increasingly important risk factor. Namely, steady growth in deposits is accompanied by a simultaneous change in the structure of deposits in favour of deposits in transaction accounts and savings deposits, which are more sensitive to disturbances.  This risk is even higher if one bears in mind the fact that banks use growing kuna deposits in current accounts to grant long-term consumer and housing loans in kuna.

Survey results show that a considerable number of small and medium-sized enterprises are faced with difficulties in access to loans, which is very often the result of insufficient capital and lack of collateral. While monetary policy cannot do much here, the strengthening of guarantee schemes can, as the latter are less developed than in comparable countries and offer scope for improvement, Vicegovernor Šošić noted in conclusion.

The participants in the panel discussion included, in addition to Vicegovernor Vedran Šošić: Luka Burilović, President of the Croatian Chamber of Economy; Saša Drezgić, Deputy Minister of Finance; Petar Pierre Matek, Management Board President of the Croatian Financial Services Supervisory Agency; Ivan Jandrić, President of the Association of Banks at the CCE; and Marijan Kralj, Council Member of the Association of Insurers at the CCE.