Croatian banks' profits hit by bad debt provisions

ZAGREB Thu Feb 13, 2014 9:44am EST

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ZAGREB Feb 13 (Reuters) - Croatian banks' profits in 2013 were down nearly 70 percent on the previous year due to higher bad debt provisions and a more conservative valuation of their assets, figures published by the country's central bank showed on Thursday.

The banks' pre-tax profit amounted to 1.02 billion kuna ($181.1 million), down from 3.36 billion kuna in 2012. Non-performing loans stood at 15.6 percent of all loans at the end of last year, with 28 percent of corporate sector loans classified as bad.

"We are witnessing a rise in the level of reservations (provisions) and a more conservative assessment of the banks' assets," vice-governor Damir Odak told reporters.

The central bank expects a further rise in bad loans this year, but at a slower pace. At the end of 2012, the level of non-performing loans amounted to 13.9 percent.

Croatia, which joined the European Union last year, has had five straight years without economic growth.

Odak said that despite negative trends the banking system remained stable with the capital adequacy ratio surpassing 20 percent.

"Even if all the bad loans were written off, which will not happen, the average capital adequacy of Croatia's banks would remain above the required level, or at around 13 percent," he said.

Bad debt provisions were increased following the introduction of a more prudent regulation by the central bank last year. Changes in the assessment of the banks' s assets - such as loans and real estate - were prompted by the banks' parent companies and auditors, Odak said.

Around 90 percent of Croatia's banking sector is owned by banks from EU countries including Italy, France and Hungary. For example, Zagrebacka Banka, Croatia's largest bank, is part of Italy's UniCredit group.

Half of the country's 30 banks suffered a pre-tax loss last year, according to figures based on reports the commercial banks submitted to the central bank.

Croatia's second biggest bank, Privredna Banka Zagreb, majority owned by Italy's Intesa Sanpaolo group, made the highest profit, amounting to 792.1 million kuna.

($1 = 5.6336 Croatian kunas) (Reporting by Igor Ilic; editing by Zoran Radosavljevic and Jane Merriman)

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