CBA Analysis no. 1

Lending interest rates on some types of loans are almost equal to average interest rates in the Eurozone. In early 2007, interest rates on housing mortgage loans were lower in Croatia than in Austria, Finland, Greece, Italy and Slovenia. The interest rate differential is somewhat higher in lending to corporate clients due to higher risks in this sector in Croatia.

Interest rates convergence can be largely explained by domestic factors: high competition and declining risks. Part of this phenomenon, on the other hand, can be ascribed to external factors: lending rates in Europe, which are much more sensitive to changes in ECB reference interest rates, and the rise in the demand for franc-denominated loans with fairly lower interest rates. A further growth of interest rates on the frank and the euro would create substantial pressure on rising interest rates in the Croatian market. However, clients will be pleased to learn that, according to analysts, interest rates will not continue to rise at the current pace for much longer.

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