Croatia Finance Profile 2012

The end of the Croatian credit boom will contribute to lower trend growth for the economy over the medium term. While we see no systemic risks at this juncture, we expect banks to be increasingly selective about who they lend to, with households in particular set to suffer, reinforcing our weak demand view. We forecast loan growth of 4.0% in 2010, with total assets set to expand by 5.0%. With Croatia's credit-fuelled boom years over, we forecast asset growth to settle at a lower trend over the medium term. After averaging 16.4% from 2000 to 2008, we forecast assets expanding by a more moderate 5.9% between 2010 and 2014. This will be a result of weak demand for credit, as businesses and households struggle with a weak economic outlook and focus on paying down debt, as well as banks being less willing and able to lend. Consequently, we believe there will be few opportunities for growth in the Croatian banking sector in the medium term. Despite this poor outlook, however, we do not anticipate the development of systemic risks for the industry. The foreign lenders that dominate the Croatian banking sector, mainly Italian and Austrian banks, have remained committed and ensured that their local subsidiaries have been well capitalised over the past two years. However, their focus is on risk management and sorting out their loan books rather than new lending, which supports our outlook for weak credit growth.