As the whole world is struggling to manage the COVID-19 pandemic and the consecutive economic fallout, the Croatian banking and financial sector has introduced a number of measures to alleviate the pressure on struggling companies as well as citizens affected by the crisis.
The Croatian National Bank (CNB) has taken several actions with the purpose of increasing the liquidity of the financial system and maintaining a stable exchange rate of the Croatian kuna. It has also provided additional liquidity for commercial banks, which have also introduced their own measures. Loans are also available under especially favourable terms and a new investment fund to support the stability of the financial system has been introduced.
The CNB, the main regulatory and supervisory authority for banks in Croatia, has introduced its own measures, adjusting the regulatory framework and intervening on the financial market to maintain the liquidity of the economy.
As the governor of the CNB stated for the media, the central bank has set out three main objectives for alleviating the impact of the COVID-19 crisis:
- maintaining a stable exchange rate;
- increasing the liquidity of the financial system; and
- improving activity on the state securities market.
The stability of the exchange rate was achieved through four interventions on the foreign exchange market in mid-March 2020 of €1.6 billion.
As for the second objective, the CNB placed HRK4.55 billion on the open bank market through a structural and a regular operation, thus adding long-term liquidity for banks at a low interest rate. The CNB accepted all bids by banks for placement of HRK3.8 billion at a fixed interest rate of 0.25% for five years and offered HRK750 million to credit institutions via a regular reverse repo auction at an interest rate of 0.30%.
However, as the additional liquidity provided to banks does not reach other financial institutions and the government bonds market was potentially threatened by a freeze, which would in turn have had an unfavourable effect on financing terms for all domestic sectors, another intervention was undertaken. The CNB purchased government bonds via two auctions worth HRK4.3 billion, which was the first intervention of its kind for the CNB.
The CNB has also adjusted its approach to the supervision of credit institutions in accordance with the positions of the European Banking Authority and the European Central Bank, making it more flexible in applying the existing regulatory framework in these exceptional circumstances. The CNB has postponed certain supervisory activities (ie, stress testing credit institutions and direct supervision of operations) and has instructed the banks on the use of liquidity reserves and the classification of existing and new exposures to regular debtors in the following year.
At present, there are no legal requirements on banks to undertake any measures, but the government has issued recommendations which have been accepted by the majority of banks operating on the Croatian market (for further details please see "Banking regulation in Croatia – an overview").
Croatian commercial banks have taken the following measures:
- a moratorium on loan payments for a minimum of three months with the possibility of an extension;
- the restructuring of existing loans;
- the introduction of a standstill period during which the banks temporarily refrain from collection of payments;
- approved overdrafts remain the same regardless of changes in income; and
- the introduction of additional loans for liquidity and working capital in collaboration with relevant state agencies and development banks, backed by guarantee schemes and other risk coverage options.
The measures are intended for both natural and legal persons affected by the current situation. In order to be eligible for the first two, an applicant must present proof, either of a reduction in business activities (companies) or loss of job or reduced salary (citizens). They must also be classified as 'A clients', as proposed by the CNB, meaning that they have been duly fulfilling their payment obligations towards the bank in the period up to December 2019. The moratorium is approved for three months with the possibility of extension to six months, depending on the situation. During the moratorium period, clients are exempt from paying both the principal and the interest; however, interest will still be accrued. The skipped instalments must still be paid by clients, either during the designated repayment period or the period will be extended by three months, pending individual agreement. Late payment fees will temporarily not be imposed on debts due from 31 March 2020 to 30 June 2020.
The banks have also agreed that they will not initiate any forced measures (ie, foreclosures or instruments of collateral) for the collection of debts from debtors that fail to settle three instalments of their credit liabilities in a three-month period, starting from the beginning of 2020.
Usually the pre-set overdrafts for citizens are approved in the amount of three average monthly salaries. If a person's salary is reduced, adjusting the overdraft may result in that person's debt. Therefore, most banks will automatically be approving the same overdraft limit regardless of any changes in income, while others will at least postpone the adjustment.
The terms for using these measures are not uniform, but rather depend on the credit institution in question and on the particular case. However, banks emphasise that they are open to individual agreements with clients.
In addition to commercial banks, affected micro, small and medium-sized enterprises have the option to request a loan to maintain liquidity and their working capital from the Croatian Bank for Reconstruction and Development and HAMAG-BICRO (the Croatian agency for small and medium-sized enterprises, innovation and investment).
The government has also established a special loan programme for working capital for micro, small and medium-sized entrepreneurs to be implemented by HAMAG-BICRO. The so-called 'corona loans' are available up to HRK750,000 (approximately €100,000) with a 0.25% interest rate, one-year grace period and a maximum five-year repayment period. The loans are processed in a simplified procedure without any additional charges. They will be available as long as there are sufficient funds, or by 31 December 2020 at the latest. As with other measures, applicants will need to prove the negative effects of the pandemic on their business activities, a minimum 20% loss of revenue in the first quarter or a projected loss in the following quarters. This measure is financed through the European Regional Development Fund.
The Croatian Financial Services Supervisory Agency recently approved the establishment of a stability fund worth HRK500 million (approximately €66 million). The open-ended investment fund with public offering (undertakings for collective investment in transferable securities (UCITS)) has been established for a three-year fixed term and is aimed at institutional investors willing to invest at least HRK1 million.
The fund has been established as an alternative method for stabilising the state bonds market. Its purpose is the common investment of assets acquired through the public offering of shares in the fund, primarily by purchasing negotiable debt securities and money market instruments issued or guaranteed for by the state as well as UCITS funds established on Croatian territory which mostly invest their assets into bonds.
The fund will be able to offer investors:
- appropriate liquidity of invested funds;
- preservation of the investment's starting value and an appropriate return on investment; and
- an increase in liquidity of negotiable debt securities and money market instruments whose issuer or guarantor is the state.
