The Croatian National Bank (HNB) plans to tighten limits on banks' ability to approve consumer loans above prescribed debt-service and loan-to-value thresholds from October 1, saying the high level of household borrowing poses a risk to financial stability.

Under the draft decision, banks will be allowed to grant a maximum of 10% of residential consumer loans above a debt-service-to-income (DSTI) ratio of 45%, down from 20% currently. The quota for non-residential consumer loans with a DSTI above 40% will fall to 5% from 10%.

The permitted share of consumer loans secured by real estate with a loan-to-value (LTV) ratio above 90% will also be cut to 10% from 20%.

The underlying DSTI and LTV limits will remain unchanged, while at least 75% of residential loans and real-estate-backed loans granted under the exemption quotas must be used to address borrowers' housing needs.

The HNB said it introduced the lending restrictions in July 2025 as a preventive measure to curb looser lending standards and the accumulation of risks in higher-risk segments of new loans.

"In the first year of application of the measures, new loans were on average contracted with more sustainable criteria," the central bank said.

However, household lending remained strong, with loans 11.0% higher year-on-year in June 2026. Housing loans grew 12.7% and non-housing loans 12.2%.

The HNB said lower interest rates had also reduced the effective restrictiveness of the DSTI limits by lowering repayment costs and allowing consumers to borrow more for the same monthly payment.

"This may encourage an increase in household indebtedness, and then their vulnerability to future macroeconomic shocks," it said, particularly if banks resume expanding variable-rate lending.

Although non-performing loans remain at historically low levels, the central bank said the quality of recently approved loans was deteriorating faster than that of older loans, raising the prospect of a reversal in the decline in bad loans.

"High loan growth, especially non-residential, continues to be a risk to the stability of the financial system," the HNB said.

The central bank expects the lower exemption quotas to reduce the share of new loans with high DSTI and LTV ratios, strengthen borrowers' resilience and improve banks' loan portfolios over the medium term.

The HNB has opened a public consultation on the draft decision until September 18.