engleski

Impact of Covid-19 Pandemic on the Loans Quality, Provisions and Profitability of the Banking Sector

The Covid-19 pandemic has caused a global economic shock and disruptions in economic and social activities. The economic climate in the world has deteriorated, and further uncertainty about the development and duration of the pandemic has caused a systemic risk to the stability of the global financial system. The sharp decline in economic activity affected the decline in the volume of business of companies in non-financial sector, and the effects spilled over into the labour market and economic expectations of households. The liquidity of companies from nonfinancial sector and the liquidity of citizens has significantly deteriorated, which has led to irregularities in the settlement of loan obligations to banks. Furthermore, demand for banking products and services was significantly reduced during the Covid-19 pandemic. In accordance with the requirements of IFRS 9 Financial instruments, banks are required to timely estimate and recognize expected credit losses and provisions for debt financial instruments. This paper aims to investigate and analyse the impact of Covid- 19 pandemic on the quality of loans, on the calculation of expected credit losses and provisions, and profitability of banking sector in Croatia. The data needed to conduct this research are collected from publicly available bulletins, annual reports and other documents issued by Croatian National Bank, as well as from publicly available annual financial statements of banks. In order to achieve the goal of this paper, collected data are processed and analysed by using the methods of descriptive statistic. Research results showed that the pandemic Covid-19 has caused an increase of expected credit losses in certain banks, and that the profitability of banking sector in Croatia has been significantly decreased due to lower level of revenues and higher level of provisions for non-performing loans.

profitability ; quality of loans ; provisions ; IFRS 9 ; banking sector ; COVID-19

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