July 10 (SeeNews) - Croatia's central bank said it will increase the countercyclical capital buffer rate in two steps of 0.5% each to 1.5% in the next 12 months to strengthen bank resilience amidst persistently elevated systemic risks, mostly driven by growth in bank lending to the non-financial private sector and a rise in residential real estate prices.
"As of December 31, 2023, the rate applied will increase to 1% and as of June 30, 2024 it will increase to 1.5%," the central bank, CNB, said in a press release on Friday.
When first introduced in Croatia in 2015, the countercyclical capital buffer rate was 0% for all credit institutions. As of March 31 this year the buffer rate to be applied is 0.5%.
The prices of residential real estate continue to grow at very high annual rates, having risen by 17.3% in the fourth quarter of 2022, the biggest increase since 2004, and by a further 14% in the first quarter of 2023. Housing loans also continued to increase strongly, having risen by 9.6% on an annual level in May, while total household lending grew by 6.6% during the same period, the central bank said.
According to the central bank, Croatia's banking system is stable and profitable and on aggregate maintains significant capital surpluses, which enables capital buffers strengthening without unfavourable impacts on cost and availability of bank financing.
"At the same time, higher capital buffers will provide more room for CNB action in the case of materialisation of the mentioned systemic risks and the need to support continuity of the credit activity of banks," it said.