April 11, 2012 / 2:36 PM / 7 years ago

UPDATE 1-Croatia c.bank cuts reserve ratio to 13.5 pct

(Adds details, analyst quotes)

ZAGREB, April 11 (Reuters) - Croatia’s central bank cut its required reserve ratio for commercial banks to 13.5 percent from 15 percent on Wednesday, in a move to free up more than 4 billion kuna ($700 million) of liquidity to boost lending to the corporate sector.

The new rate will take effect on May 9, the bank said in a statement after a board meeting. The reserve ratio is the amount of currency commercial banks have to deposit with the central bank as a proportion of their overall reserves.

The central bank, which said last week it would make such a move, aims to spur an economic recovery after three years of recession. It is hoping banks will extend new loans particularly to export-oriented firms.

“This is the latest in a series of efforts by the central bank in recent years to help boost growth. Certain effects could be seen already towards the end of this year and in particular in 2013,” the bank said.

The cut in the ratio frees up some 4.1 billion kuna and some 110 million euros ($143.91 million) to the banking sector. The move has been agreed by the central bank, the finance ministry, commercial banks and the state development bank HBOR.

The central bank has also asked commercial banks to match the freed amount in new funds available for lending, which should not be an obstacle as liquidity in the banking sector has been strong in recent months.

“This is a positive step but it is too early to assess its effects. There have been similar ideas in the past but this time the focus is on export-oriented companies that now ought to get hold of cheaper funds. That’s a good change,” said Hrvoje Stojic, an analyst at Hypo Group Alpe Adria.

However, he said there might not be enough attractive projects for the banks to finance, at least initially.

“The economic outlook, after three years of recession, is still not particularly upbeat for new investments. So, there is an uncertainty about the outcome, but the decision is undoubtedly positive,” he said.

The centre-left government that took office in December has pledged to cut spending and the budget deficit and to revive the economy by improving the investment climate before the country joins the European Union in July next year.

While the government forecast growth of 0.8 percent for this year, most analysts expect another contraction of up to two percent. They say that reforms, even if implemented quickly, can hardly yield benefits before 2013. ($1 = 5.7135 Croatian kunas) (Reporting by Igor Ilic; Editing by Zoran Radosavljevic and Stephen Nisbet)

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