Croatian property market a risk, HNB warns

Croatia is seeing increasing cyclical vulnerabilities in its economy, with the property market identified as a key source of risk, according to the latest Financial Stability report presented by the Croatian National Bank/Hrvatska narodna banka (HNB).

Officials from HNB said that growing demand, rising wages and favourable labour market conditions are driving strong credit growth and increasing property prices, raising sensitivity to potential external economic shocks.

The findings were presented during the launch of the latest issue of the Financial Stability publication at the Moneterra -Museum of Money in Zagreb.

Property Market at the Core of Emerging Risks

According to HNB, Croatia’s economy continues to build cyclical vulnerabilities, with developments in the housing market playing a central role.

Strong domestic demand, higher wages and solid employment conditions are supporting rapid lending growth, particularly in housing-related credit.

At the same time, the central bank warned that global uncertainties remain elevated, particularly due to geopolitical tensions, security risks and trade instability.

Given Croatia’s close integration with the European economy, any external shock could quickly spill over into the domestic financial system.

Credit Growth and Signs of Pressure in Household Lending

The report notes that lending to households continues to grow, supported by favourable financial conditions. However, early signs of deterioration in credit quality have already been observed in parts of newly approved household loans.

Corporate lending is also expanding at elevated rates, particularly in sectors more sensitive to economic cycles, adding further exposure to potential downturns.

While banks remain highly capitalised and profitable, the HNB noted that their overall resilience is gradually declining as exposure to both traditional and emerging risks increases.

Macroprudential Measures Strengthen Stability

HNB officials highlighted ongoing macroprudential policy measures aimed at strengthening the resilience of the banking sector and households.

Lana Ivičić, Director of Macroprudential Policy, outlined the effects of measures introduced in July last year, which include tighter consumer lending criteria and an increased countercyclical capital buffer.

These measures, she said, have contributed to strengthening banking sector resilience, slowing credit growth and reducing risk levels in newly approved household loans.

Panel Discussion Highlights Systemic Risks

A panel discussion held during the event focused on key challenges for maintaining financial stability.

Topics included the deterioration of non-housing household loans and the impact of energy price shocks on corporate performance.

Experts also discussed systemic risks linked to synthetic securitisation and the growing interconnectedness between banks and non-bank financial institutions.

Speakers emphasised that these interconnected risks require continued monitoring, particularly in a more uncertain global financial environment.

Financial Stability Outlook

The Financial Stability publication is a regular annual report by the Croatian central bank, assessing key risks to the banking system arising from macroeconomic conditions.

It concludes that while Croatia’s banking sector remains stable and well-capitalised, rising credit activity, elevated property prices, and global uncertainty are increasing overall vulnerability, requiring continued policy vigilance.