Fitch Ratings said it expects loan growth to be minimal in 2014, because of the weak expected economic recovery of 0.7% in 2014 and 1.2% in 2015 following a 0.9% contraction in 2013.
Loan growth was only 5.0% in the first nine months of 2013 after a 1.0% contraction in 2012, Fitch Ratings said in a report on banks in the CEE region.
The outlook for the Croatian banking sector remains stable thanks to the banks’ strong capitalisation and stable funding and despite the continued deterioration in asset quality driven by the country’s fifth year in recession.
The recession is affecting both loan growth and asset quality. Banks have reduced their risk appetite and strengthened their credit policies.
Fitch expects non-performing loans (NPLs) to continue to increase in 2014 in the absence of a strong domestic economic recovery, and reserve coverage to remain only moderate.
The performance of Croatia’s banks is under pressure as their revenues are negatively affected by the lack of growth and increasing loan impairment charges.
Loan impairment charges absorbed 55% of pre-impairment profit in the nine months of 2013, up from 49% in 2012, and Fitch expects the trend to continue in the absence of recovery in economic growth and continued asset-quality deterioration.
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