Market trends

Scientists on Croatian banking system: very stable

By on 28 December 2016

Scientists of the University of Split have concluded that Croatian banks have plenty of capital strength: they enjoy a high operating efficiency, their solvency ratios are well above the legal minimum, and their liquidity position is in good shape.

‘Very good’ is how researchers Soric Branko and Toni Susak describe the capitalization of the Croatian banking sector after studying the performances of the Croatian banks from 2009 to 2014. Capitalization stands for the way in which the total assets of banks are composed, measuring the ratio between debt and equity. It also shows the way the equity is composed, in other words, the amount of the issued and paid-up capital as well as the value of the potential reserves.

The lower the ‘capital adequacy ratio’, CAR, the more banks are exposed to risks and have insufficient buffers. According to an international set of standards drawn up by the Bank for International Settlements, BIS, banks must have a minimum CAR of 4%. Croatian banks are way above that: from 2007 to 2014, the CAR increased from 16 to 22 percent.

As the researchers also write: “Capitalization of the Croatian banking system is very good, capital adequacy ratios are well above the legal minimum, indicating the safety of the Croatian banking system.”

Strong liquidity

Besides, they also refer to the healthy liquidity ratio of Croatian banks, measured by the ‘Total Loans to Total Assets Ratio’. For many years, Croatian banks have had an average liquidity ratio of just above 60%, the same percentage as the average of the US banking sector.

A healthy liquidity ratio is required to meet one of the other standards of the BIS, which stipulates that banks must have sufficient cash available to meet potential payment commitments in a 30 days’ stress test.

High operational efficiency

According to Soric and Susak, Croatian banks also achieve high levels of operational efficiency. They, therefore, highlight the ‘cost to income ratio’: the higher this ratio, the faster costs increase compared to the benefits. Croatia recorded a ratio of 51%.

In Europe, the ratios are rather high: in the Netherlands, the banking sector records 67.7%, in Belgium 66.6%, France 65.8%, Italy 67.2%, and Germany even has a ‘cost to income ratio’ of 71.6%. The Croatian average is also lower than of the USA (58.92%) and Japan (62.56%).

Fortunately, banking is no casino

As a saver, you must not grumble about the fact that Croatian banks, so far, are not trying to claim a more dominant position in the international financial markets. The researchers state that avoiding so-called ‘casino banking’, largely underlying the financial crisis of 2008, ‘has a positive effect on the stability of the banking system in Croatia.’

Striking changes from the Netherlands

Striking is that Soric and Susak show that the revenue models of Croatian banks are less dependent on interest rates than some Western European banking markets like the Dutch. On average, the Dutch banks’ earnings now traditionally consist of about 85% in interest payments and 15% of fees paid for services, as reported by the Dutch daily financial newspaper Het Financieele Dagblad, FD, based on the report 2016 Retail Banking Radar by American global management consulting firm A. T. Kearney. Soric and Susak show that Croatian banks for 71% rely on interest payments.

The Croatian banking market also appears to be more competitive than the Dutch. Although, in Croatia, the degree of concentration still is a bit on the high side Soric and Susak write: ‘Croatian banking system is highly concentrated, significantly higher than the banking systems of Germany and Italy, but on the other side significantly less than the banking systems of Estonia, Lithuania, Finland, and Netherlands’.

Need your savings

Even though the Croatian banks do have a good cost-benefit ratio, their challenge now is to increase sales. The aim is to achieve a return on assets (ROA) and return on equity (ROE) of at least 8% again. According to the research figures that is the level the Croatian banks had in 2007, prior to the financial crisis but had to let it go then. Since 2014, the average turnover has risen again, but there still is some catching up to do.

According to Soric and Susak, to be able to provide loans to companies within the growing Croatian economy, Croatian banks rely to a large extent on the capital contribution from savings deposits. Savings deposits are of great importance to increase their revenue.



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Bas van Essen

Savingsmonitor is a news blog reporting about savings behavior and statistics across whole the European Union. Bas van Essen is responsible for the content. Bas is a former business reporter, who covered the Dutch startup scene, the job market and personal finance. Bas served the Dutch Financial Times ('Financieele Dagblad'), the Dutch 'Financiële Telegraaf',, and IDG. He followed a Master Communication Science and MBA Big Data & Business Analytics at the University of Amsterdam.