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The Financial Stability Council is the inter-institutional body that designs the macroprudential policy of the Republic of Croatia. It consists of representatives of the Croatian National Bank (HNB), the Croatian Financial Services Supervisory Agency (Hanfa), the Ministry of Finance (MF) of the Republic of Croatia and the Croatian Deposit Insurance Agency (CDIA).


21st Financial Stability Council session

Published: 19 December 2023

The Financial Stability Council met on 19 December 2023 for its 21st session, chaired by CNB Governor Boris Vujčić and attended by Finance Minister Marko Primorac, the Croatian Financial Services Supervisory Agency Board President Ante Žigman, Director of the Croatian Deposit Insurance Agency Marija Hrebac and their associates.

The Council concluded that the main risks to the stability of the financial system stemmed from increased geopolitical risks and higher interest rates fuelling a deterioration in the debt servicing capacity of households and non-financial corporations. The current relatively high share prices relative to economic determinants in some global markets and the subdued risk premium might raise the risk of potential future price corrections, which might also spill over to the domestic market. The upward phase of the EU real estate market cycle ended for the most part, with some EU member states already witnessing a reversal. Since the end of 2022, Croatia has also witnessed a decline in residential real estate turnover, followed by a stabilisation of prices in the third quarter of 2023. 

The banking system has remained highly capitalised, with a marked increase in profitability this year amid rising interest rates and owing to a relatively large share of short-term assets sensitive to interest rate changes. Lending to firms remained subdued, while household lending continued to rise sharply, with a steady contribution coming from housing loans and a rapid increase in general-purpose cash loans. Loan quality continued to improve. However, the persistently high interest rates and a potential economic slowdown might reverse this trend. In order to strengthen credit institutions’ resilience, in June 2023 the Croatian National Bank decided to additionally increase the countercyclical capital buffer rate, from 1% applicable from 31 December 2023 to 1.5%, effective as of June 2024. At the session, the CNB also reported on its other recent macroprudential activities: the aggregate increase in capital requirements for other systemically important institutions, the continued application of higher risk weights for exposures secured by real estate and actions taken at the recommendation of the European Systemic Risk Board.

Financial markets recorded a sharp rise in the value of financial instruments in 2023, supported by investor optimism associated with the slowdown in inflation, monetary policy tightening potentially drawing to a close and the fact that global recession has been avoided. This has also affected the domestic equity market, which saw a record-high rise in prices in 2023. Consequently, the CROBEX stock index rose by 23% in the first 11 months. The value of the shares in mandatory pension funds also recorded a growth, with a rise in the MIREX indices of all three categories of mandatory pension funds. Interest rate risk and the associated market risks continue to be the most prominent risks faced by the domestic financial services sector at the end of the third quarter of 2023. Despite having recorded a decline from the first quarter of 2023, systemic risks in the financial services sector remained slightly elevated at end-September 2023.