Croatia central bank urges lenders to offer fixed interest rates

ZAGREB, Sept 26 (Reuters) – Croatia’s central bank has called on the country’s lenders to offer clients the option of switching to fixed rates on loans such as mortgages, which are most exposed to interest rate rises.

In order to facilitate this the central bank said it had extended the scope of collateral banks can use to raise funds.

“The focus is on the loans whose maturity is longer than seven years. Fixing interest rates would also be beneficial for the banks as it reduces their credit risk,” Croatian central bank governor Boris Vujcic said on Tuesday.

More than 70 percent of loans and deposits in Croatia are denominated in euros, and more than 90 percent of Croatia’s lenders are owned by banks in other European Union countries, notably Italy, Austria and Hungary.

Variable rate loans and those in euros are most exposed if interest rates start to rise on international markets.

“It is up to the clients to decide whether they want to convert their loans into those with fixed rates, but they should be offered such opportunity,” Vujcic added.

Central bank data shows 67 percent of loans to Croats have variable interest rates and almost 30 percent are linked to Euribor. Most are housing loans and 65 percent of such loans have a maturity which is longer than five years.

Many banks already offer fixed interest rates on new loans and last year the central bank introduced four-year repo operations to boost lending in the national kuna currency.

Vujcic said that from now on banks will also be able to offer short-term papers, like treasury bills, as collateral for longer-term liquidity loans from the central bank.

“This measure will increase potential funds for longer-term loans to 38 billion kuna ($5.98 billion) from the current four billion kuna,” Vujcic said. ($1 = 6.3558 kuna) (Reporting by Igor Ilic; editing by Alexander Smith)

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