The case of AGROKOR: assessing the impact on Croatia s banking system and economy

Transcription

1 The case of AGROKOR: assessing the impact on Croatia s banking system and economy Tomislav Ridzak, director of Financial stability department* *the views and opinions expressed in this presentation are those of the author and do not necessarily reflect the official policy or position of Croatian National Bank

2 percentage points 28 = 1 Croatian economy continues to grow Real GDP, contributions to growth Merchandise exports growth, by destination % Private consumption Government consumption Gross fixed capital formation Change in inventories Exports Imports Real GDP - right Sources: CBS and HNB forecast (July 217) * Cefta Old EU members (EU 15) NMS (12) Other countries Total *In 217, data available till June. Sources: CBS. In the second quarter of 217, real GDP growth accelerated on quarterly and yearly basis, and available data for July suggest intensification of growth in the third quarter. After EU accession favourable developments in goods export are visible. Tourism continues to dominate in the export of services. Favourable trends in the labour market are expected to continue, with a further increase in employment and wages.

3 in mil EUR as % of GDP Along with stable domestic economic activity, the downward trend in external imbalances has continued 12 External debt indicators -12 Net inflow from the EU budget: recorded as secondary income or capital transactions , % of GDP % of GDP Gross external debt Net external debt Net IIP - right Sources: CBS and HNB Allocated funds - capital Allocated funds - current Payments to the EU budget Total received funds Net allocated funds - right Net received funds - right Sources: MoF and HNB. The current account surplus, which has been recorded for the fifth year in a row, could increase further in 217 due to: the unfavourable impact of the crisis in the Agrokor Group on banks profits, which arises from increased expenses on loss provisions for placements to that group; the growth in net exports of services and; transfers from the EU budget. Cost of external financing has decreased significantly in the last 12 months. Direct equity investments in Croatia are expected to recover gradually, but EU financing is increasing

4 12/8 6/9 12/9 6/1 12/1 6/11 12/11 6/12 12/12 6/13 12/13 6/14 12/14 6/15 12/15 6/16 12/16 6/ / /217 % % Non-performing loans (1) Asset quality improved since 215 However, NPLs in NFC sector are still high 2% NPL Ratio NPL Coverage - (Right) 7% 4 Provisioned part Unprovisioned part Coverage (right) 8 18% 16% 14% 12% 1% 8% 6% 4% 2% 6% 6.5% 5% 13.2% 4% 3% 2% 1% % % Non-financial corporates Households Note: Vertical line denotes the entrance of Decision on the classification of placements ad off-balance sheet liabilities of credit institutions (OG 41A/214) into force Source: HNB. Since the end of 28 NPL ratio grew by 12 percentage points from 5% to as high as 17%. NPL coverage has been improving after the introduction of Decision (OG 41A/214) in March 214.

5 % Billion HRK Non-performing loans (2) NPLR reduction since 214 primarily driven by NPL sales NPL write-offs mainly driven by sales of NPLs Write-offs contribution Total loans contribution NPL reclassification contribution Change in NPL ratio (YoY) Sales of NPPs NPL Ratio - right axis 18% 17% 16% 15% 14% 13% 12% % / /217 1% Note: Vertical line denotes the entrance of Decision on the classification of placements ad off-balance sheet liabilities of credit institutions (OG 41A/214) into force Source: HNB. An improvement in the quality of loans since 215 was mainly driven by the intensified process of banks balance sheet clean-up, i.e. write-offs of NPLs that were, above all, influenced by the increased sale of such placements. The improvement in the quality of loans is expected to continue in 217 despite the developments with Agrokor Group. Banks have classified their exposures to the company in the Q1 217 as non-performing but that increase in NPLs was offset by increased sales of NPLs.

6 billion HRK billion HRK Positive trends in non-financial corporations performance continue in 216 Operating revenues (right) EBITDA Net profit Solid performance of Croatian corporate sector (excluding Agrokor) continued in Operating revenues continued to increase, while EBITDA surpassed peak pre-crisis levels FY 216 net profit was close to its historical maximum (around 3.2 bn EUR) Sources: FINA and HNB -1

7 Relative size of Agrokor group (EUR billion) EBITDA Net profit Operating revenues Capital NFC (Total) Agrokor Perc. 3.93% 5.38% 5.5% 4.22% Sources: FINA and Agrokor group annual report for 215 fiscal year 7

8 An insight from corporate ratings migration We construct a measure (M SVD ) that shows average ratings change probability (weighted by number of firms that change ratings). ratings improvements (+ M SVD ) ratings deterioration (- M SVD ) Ʃ 13,9% 13,6% 7,1% 1,3% 7,3% 6,7% 2,8% -,6% 1,4% -2,9% 1,1% -2,9% -15,1% -15,3% -18,4% 211./ / / / /216. ML S all Source: HNB Ratings change intensity is the difference between ratings improvements and deterioration. Direction: + improvement and worsening of credit ratings. 8

9 On average corporate ratings improve, with M&L companies leading recovery Source: HNB Medium and large companies exit recession faster than small companies: they give an initial push to the economy. Small companies follow recovery of M&L segment spillover effect of good business results from M&L segment due to business links / interconnectedness. In subsequent steps ratings recovery for small companies is based on interactions with M&L companies in the economy. 9

10 annual rates of change,% Main risks to GDP projections in the projection period are balanced GDP forecast Financial problems in the Agrokor Group may have a stronger adverse effect on growth rates of the main macroeconomic aggregates than currently projected On the other hand, positive risks are related to a stronger than projected growth in exports of tourist services HNB forecast incorporates slower growth of tourist income than in the previous two years Sources: CBS and CNB projection (July 217).