Exposure of the Private Non-financial Sector to Interest Rate Risk: Analysis of Results of the Survey on Interest Rate Variability

The Croatian National Bank has conducted a survey of credit institutions’ business practice in defining interest rates in the private sector funding segment within its regular risk monitoring activities associated with the stability of the financial system. At the end of March 2016, loan agreements with variable interest rates accounted for 81% of the total loan portfolio of non-financial corporations, while in the household sector they accounted for 67% of all granted loans. The national reference rate (NRR) is the predominant (47%) variable parameter linking variable interest rates in the household sector, while EURIBOR is predominant in the non-financial corporate sector with a share of 45%. The largest share of loans granted to the private non-financial sector with fixed interest rates is associated with interest rates that are invariable until loan maturity (96% of all loans with the initial interest rate fixation). In the funding of non-financial corporations, credit institutions still partially apply interest rates set on the basis of a decision by the institution’s management. Loans granted with interest rates that are fixed over a period of time shorter than their original loan maturity are primarily associated with housing loans (at the end of March 2016, one fifth of fixed interest rate housing loans, or only around 4% of total housing loans, had been granted with an interest rate that was invariable over a certain limited period of time, starting from the moment the loans were made and mostly lasting up to five years).