Aiming to speed economic recovery by larger and more favourable loans to be granted for projects contributing to healthy growth, rational employment and balance of payment improvement, the Croatian National Bank Council decided at today's meeting to reduce the bank reserve requirement rate from 14 to 13 percent. The new rate will be applied already at the next calculation, to be carried out in a week.
The effect of this decision is to release approximately HRK 2.9bn of additional liquidity for banks (about 2.4bn in the kuna component and 0.5bn in the foreign exchange component of reserve requirements), thus increasing their credit potential and reducing unit operating costs. It is planned that banks will use the funds in cooperation with the Croatian Bank for Reconstruction and Development, which is to assume part of the risk related to joint credit placements, according to the criteria established by the Government of the Republic of Croatia. Given the approximate HRK 5bn of free liquid assets already present in the banking system, it is considered that there are sufficient funds to start the recovery of the economy.
The final aim of the project is to spur lending to healthy companies. Providing that the funds are actually used for the stated purposes, the central bank stands ready to further cut the reserve requirement rate. However, if the funds released pursuant to today's decision are not used as planned, but to once again stimulate consumer goods imports or invest in foreign exchange, destabilising the exchange rate as a result, the Croatian National Bank will take all measures at its disposal, including liquidity management, to preserve macroeconomic stability.
Analysing current trends in the financial and real sectors, Council members paid special attention to performance indicators of banking institutions, which, according to preliminary and unrevised data, reported profit before taxes of HRK 3.4bn for 2009, one fourth lower than in the previous year, and an increase of about HRK 2.3bn in provision expenses. Non-performing loans almost doubled over the one-year period, exceeding 7.6 percent of total loans at the end of December. Claims overdue for more than 90 days exceeded HRK 20bn, which is an increase of approximately HRK 1bn in the last quarter alone, while one-day and longer delays in repayment were recorded in one third of loans. Out of the total of thirty-nine banks and savings banks, nine reported operating losses, according to preliminary and unrevised data, compared with five in the previous year. The average capital adequacy ratio is still at a relatively high level of 15.7 percent.
As assessed by Council members, these data indicate that the banking system has managed to remain stable, but also that its performance is closely related to real sector trends. That is one more reason why banks should contribute towards initiating a long-term recovery of the economy, instead of focusing on their own partial, short-term interests, charging maximum possible interest on all types of placements.
Also at the today's meeting, the CNB Council approved the proposal of the Supervisory Board of Štedbanka d.d., Zagreb to appoint Krešimir Starčević member of the Management Board.