Statt eines Rückgangs haben wir einen Anstieg der Hypothekenzinsen, wobei wirtschaftliches Wachstum und starke Nachfrage die Schuldigen sind

As we have previously written in Lider, interest rates in Croatia have been rising more slowly, so they will also fall more slowly. This explanation was provided by the Croatian Banking Association in response to the question of why mortgage interest rates in Croatia have not fallen in the first 10 months of this year, unlike in other eurozone countries, except Greece.

According to the latest data from the Croatian National Bank, the average mortgage interest rate in Croatia was 3.72 percent in September this year. Compared to the previous month, there was a slight decline of 0.03 percentage points, while compared to the same period last year, there was a slight increase of 0.18 percentage points, the Croatian Banking Association (HUB) reported.

When discussing changes in interest rates, HUB emphasizes that it is important to note that it takes some time for changes in monetary policy, which at this stage is reflected in the reduction of interest rates by the European Central Bank, to spill over into the credit market.

– Due to the specifics of the market in Croatia, this was the case during the phase of rising interest rates when mortgage rates reacted much more slowly and mildly and were among the lowest in the entire euro area. Likewise, we expect a mild and slow transfer in the current phase of declining interest rates – HUB states, emphasizing that in other eurozone countries, mortgages are predominantly granted with variable interest rates linked to Euribor, which strongly correlates with the key interest rates of the ECB.

– In Croatia, most mortgages are granted with fixed or combined interest rates. Borrowers with variable interest rates predominantly have a national reference rate (NRS) linked to deposit interest rates. Given that we have had a continuous rise in deposit interest rates, the NRS has slightly and gradually increased in the recent period. It is important to note that from 2022 (July 2022, the first increase in interest rates) to 2024 (June 2024, the first decrease in interest rates), the ECB’s interest rates have increased by 4.5 percentage points, while in Croatia, the increase in mortgage rates has only been 25 percent – HUB states, adding that capital, liquidity, demand elasticity, credit quality, the durability of average loan contracts, and other factors have a strong impact on interest transmission.

The banking system is highly liquid

Also, mortgage interest rates this year have fallen faster where economic activity, and thus demand, is weaker. Croatia has one of the highest economic growth rates, and thus the demand for loans, as HUB claims, is strong – the annual growth rate of mortgages has long hovered around 10 percent.

– The current level of interest rates is still comparable to the average cost of borrowing for real estate purchases in, for example, Austria, and we still have lower interest rates compared to a large number of euro area countries. In conclusion, interest rates in Croatia are less sensitive both in the phase when ECB interest rates are rising and when they are falling, but in the long term, they are more favorable than ever and comparable to many more developed euro area countries, and in the coming period, we can expect a continuation of interest transmission, i.e., a gradual decrease in interest rates on loans – HUB states.

However, while we hear daily advertisements about mortgage conditions from certain banks, we decided to look at how effective interest rates (EIR) are moving in domestic banks. These are data that can be found in the Informative List of Consumer Loan Offers published on the official website of the Croatian National Bank.

According to the mentioned informative list, the highest EIR is held by Kent Bank at 6.25 percent, while the lowest interest rate is in Karlovačka Bank, at 4.07 percent. Zagrebačka Bank follows Karlovačka with low interest rates, with an EIR of 4.11 percent, then OTP with 4.29 percent, Privredna Banka Zagreb with 4.32 percent, and Hrvatska Poštanska Banka with 4.35 percent. Among the largest banks in Croatia is Erste Bank, whose EIR is 4.46 percent.

From Erste Bank, they commented on the situation with interest rates in Croatia, confirming HUB’s statement that in the recent period, the level of interest rates has predominantly depended on the moves of monetary policy makers in the segment of raising or lowering reference interest rates.

– However, although the rise in interest rates was visible in Croatia, it was in a milder form compared to some other comparable European countries, especially those outside the eurozone, considering Croatia’s entry into the monetary union, the benefits of integration such as the practical elimination of currency risk and the contribution to reducing the risk premium, as well as the fact that the banking system in Croatia has already been highly liquid for some time – Erste Bank states, adding that when it comes to new placements, they suggested that interest rates in this interest cycle are likely around their peak.

Almost 90 percent of citizens have contracted a fixed interest rate

– Any gradual decline in interest rates will depend on the dynamics of further lowering reference interest rates, about which there is still a degree of uncertainty, but also on other factors, with the growing trend of deposit interest rates being highlighted. Namely, when we talk about already approved loans, especially those linked to Euribor, new market conditions will be visible in the level of interest rates. However, contrary to Euribor, the NRS rate, which depends on the level of interest rates that banks pay to their depositors, is likely to continue to show an upward trend. Additionally, it should be noted that part of the loans to citizens in repayment, which are linked to Euribor, due to the rise in reference rates, have already reached the legal limit on the maximum interest rates, and they are currently lower than they would be if there were no legally determined limit – Erste Bank states, noting that loans to citizens in repayment, which were contracted with the application of a variable interest rate, depend on the movement of the variable parameter (NRS, 6M or 12M EURIBOR) and the interest rate is adjusted once or twice a year, usually in the month in which the loan was initially taken, i.e., on January 1 or July 1, if they are loans linked to Euribor contracted before January 1, 2014.

– At this moment, looking at the portfolio by volume, almost 90 percent of loans to citizens in repayment are contracted with some form of fixed interest rate (fixed interest rate for the entire repayment period or combined, with one time period of repayment in which the interest rate is fixed), while about 10 percent of loans are contracted with a variable interest rate – of which about 49 percent are linked to Euribor, and 51 percent to NRS – this bank states.

When it comes to new loans, Erste Bank claims that it has not changed interest rates recently nor does it currently plan to introduce changes in that segment. However, it closely monitors and analyzes market movements, including movements in reference interest rates, and adjusts its operations accordingly.

In response to the inquiry about mortgage loans, OTP Bank also sent us its answer, stating that it will align interest rates on the existing portfolio with the movements of reference interest rates, while interest rates on newly approved loans are formed and adjusted depending on the market situation.