24th Session of the Financial Stability Council

The Financial Stability Council held its 24th session today, chaired by the CNB Governor Boris Vujčić and attended by the Finance Minister Marko Primorac, the Croatian Financial Services Supervisory Agency Board President Ante Žigman, representatives of the Croatian Deposit Insurance Agency and other Council members.

Growing uncertainty, driven by increased tensions regarding international trade relations and geopolitical fragmentation, has considerably increased volatility on global financial markets. Although the prices of financial instruments have mostly recovered in the past month, the prolonged period of heightened uncertainty amid trade conflicts and the continuation of geopolitical fragmentation may increase market oscillations and worsen investor sentiment, as well as the sentiment of consumers and entrepreneurs. This is precisely why geopolitical risks are the most important source of systemic risks for financial stability.

At the beginning of 2025, the domestic financial market was also marked by the weakening of the market sentiment accompanied by strong short-term corrections. However, in the second half of April markets recovered and compensated the previous losses. Therefore, the main equity index increased moderately in the first four months of 2025, while the bond index CROBIS edged down slightly. Despite increased volatility, the financial services sector remained stable thanks to the larger portfolio diversification by asset classes and geographical regions. In the first four months of 2025, pension fund yields remained positive. There were no signs of a systemically significant outflows of funds in the investment funds sector, while a strong inflow of funds continued in specific categories, such as money market funds. The results of the recently conducted stress test exercise additionally confirmed the sector resilience, even in the scenarios of highly unlikely but possible shocks.

The Croatian economy should continue to grow relatively strongly in 2025, although slower than in the previous year. Employment and wages growth should also remain relatively high, and the slowdown in inflation is expected to continue. Growth in the prices of residential real estate edged down in 2024, although it remained elevated and the number of purchase and sale transactions stabilised after two years of decline. Strong lending activity continued in 2025, supported by the relaxation of the degree of ECB’s monetary policy restrictiveness, so that the years-long trend of the decline in total household debt was reversed. The deterioration in the quality of non-housing loans granted in the past several years was also visible, emphasising the vulnerability of a part of indebted households.

In order to mitigate risks related to relatively lax household lending standards, from July, the Croatian National Bank introduces new macroprudential measures, which will limit the debt service-to-income (DSTI) and loan-to-value (LTV) ratios, as well as their maturity when granting loans. These measures are the ongoing structural element of the CNB’s macroprudential policy, which curb consumer over-indebtedness and excessive level of risk assumption by banks, which amid worsened macrofinancial conditions might adversely affect economic growth and financial stability. These measures are complementary with the existing macroprudential measures, which require banks to maintain additional capital buffers. All measures will jointly support bank resilience to potential shocks, which, according to the results of the current stress test for banks, is still high.