engleski

Some determinants of the real and financial sector divergence problem in transitional economy - the case of Croatia

The paper actualizes the problem of imbalance between the real and the financial sector of the Croatian economy. In spite of the solid economic growth rates, stability of local currency, liberalization of current and capital transactions and the initiated structural reforms and legislative adjustments to the EU acquis, the Croatian financial system and the real sector are not in balance which would guarantee long term, crisis-free stability. The banking system, almost completely internationalized in terms of ownership, in the last few years has been developing strongly and dynamically, reaching the level of efficacy of the banking systems in developed world countries. High and expansive growth rates of the banks' assets are supported not only by the growth of GDP, but also by the significant foreign debt of the domestic sector. The central bank has introduced a limitation on the growth of placement and practically halted the growth of foreign debt of the domestic banks. Such measures decrease the excessive total foreign debt of the country, weaken the pressure on the growth of inflation, but also additionally slow down the economic growth which could, if it results in a recession, cause a credit crunch. The negative trends mentioned are accompanied by an exceptionally high leap of real estate prices on whose values in the function of collateral banks have achieved progressive expansion of their assets. The problem of bank portfolio safety and of the stability of the financial system will escalate if a more significant drop in real estate prices occurs, which would disable the banks from compensating for credit placements without major losses by auction of collateral.

economic growth; foreign debt; loss given default; real estate

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