23rd Session of the Financial Stability Council

The Financial Stability Council held its 23rd session on 29 November 2024, chaired by the CNB Governor Boris Vujčić and attended by the Director of the Public Debt Management at the Ministry of Finance of the Republic of Croatia Hrvoje Radovanić, the Croatian Financial Services Supervisory Agency Board Member Tomislav Ridzak, Director of the Croatian Deposit Insurance Agency Marija Hrebac and their associates.

The domestic financial system’s exposure to systemic risks remained slightly elevated amid high global uncertainties, primarily those associated with geopolitical and trade risks. Growing geopolitical tensions and geoeconomic fragmentation might generate shocks in the global economy and the financial system and have negative implications for the domestic macrofinancial environment. The financial services sector is facing pronounced cyclical risks, mainly those associated with relatively high market valuations and low risk premiums, increasing the likelihood of sudden and strong price corrections in the financial markets.

Against the backdrop of a relatively vigorous growth and a gradual fall in the rate of inflation in Croatia, household loans, particularly consumer loans continued to rise sharply. The interest rates on household loans remained stable and those on corporate loans started falling. The risks associated with rapid loan growth, although mitigated by low household indebtedness, remain pronounced owing to a relatively high debt service-to-income ratios, which rose further for housing loans driven by higher interest rates and residential real estate prices. By contrast, the growth in corporate loans remained subdued and mostly related to real estate and trade activities. The prices in the residential real estate market continued to rise strongly with a lower number of purchase and sale transactions, thus the cyclical risks associated with that market remain elevated.

Despite brief spikes in volatility in 2024, the global trend of price growth persisted in almost all classes of financial assets, driven by investor optimism and lowering of key interest rates by major central banks. This impacted the domestic capital market, which recorded an increase in turnover and prices. The main equity index CROBEX rose 20.9% in the first ten months of 2024 and the bond index CROBIS rose 2.0% during the same period. The assets of the financial services sector continued to rise due to an increase in investment valuation and new net payments, with profitability recovering from the first part of the year and the sector’s liquidity reserves and solvency remaining elevated.

The banking system resilience to possible shocks is maintained by high liquidity and capital levels, supported by the CNB’s macroprudential policy. The maintaining of high capital buffer levels strengthens the system’s capacity to continue financing the economy even if the macroeconomic and financial conditions were to worsen. The CNB is closely monitoring the evolution of the risks to financial system stability and if necessary, will adjust its macroprudential policy measures.