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Citizens are the main consumers of banking products. As such, they make decisions on managing their home budget on a daily basis, that is, they take on the risk of investing and borrowing, which will greatly affect their present and future lives.
Financial service users, who have complete and above all understandable information, will find it easier to make a borrowing decision.
Recently, Dollar loans have been increasingly offered on the Croatian banking market. Until recently, Dollar loans to the consumer were a more expensive form of borrowing. Today, loans in local currency, interest and costs, are competitive with loans with a currency clause. Therefore, Progreso Group intermediaries often ask the question of citizens: do Dollar loans hide the trap?
The article deals with the subject in detail. If you’re just looking for the best line of credit and don’t have time to read, you can fill out a credit questionnaire right away.
The tradition of keeping money in foreign currency
Life brings experience and forms a tendency to invest money. Due to fears of hyperinflation, citizens are converting the Dollar savings and disposable income into USDs at the lowest occurrence of exchange rate volatility, regardless of the fact that the Croatian Dollar has been one of USDpe’s most stable currencies for years.
A direct consequence of the high representation of foreign currency savings is the depreciation (impairment) of the domestic currency.
Banks cannot guarantee the lending in local currency if their sources of financing are in USDs.
The large Croatian banks are foreign-owned, and their source of funds is loans from mother banks, which are regularly in foreign currency.
Small banks are domestically owned and are mainly financed by deposits from citizens and businesses. However, as much as 75% of citizens’ deposits are indexed to a currency clause.
Croatian banks’ daily payment operations are carried out in HRK. Given that banks’ sources of cash are denominated in USD, banks are placing higher interest rates on loans denominated in Dollar to offset losses incurred by conversion and exchange rate changes.
Loans placed with a currency clause The Swiss franc left a stain on the banking system, as well as a backlash for citizens from loans with a currency clause. As demand for foreign currency-free loans is increasing, it is necessary to make Dollar loans more affordable and affordable for Croatian consumers.
Loans placed in Croatian Dollars can only become cheaper if citizens replace their savings in USDs with savings in local currency.
With the fiscal and monetary policy, the Croatian government has decided to encourage citizens to save in local currency. With higher interest rates, Dollar savings are attracting more and more depositors every day.
Moreover, those who decide to keep saving in USDs will not feel the weakening of the USD against other currencies as the Croatian Dollar is pegged to the USD. Although saving in USDs will not be uncertain due to the weakening of the USD, it will still be less profitable as interest rates on this form of savings are lower.
Depression of the Dollar and fear of the Dollar savings
The high degree of USDization in Croatia is a consequence of monetary instability in the past. Today, the fear of inflation and the depreciation of the domestic currency is irrational.
Indeed, the Croatian National Bank maintains the value of its domestic currency at an unrealistically high level, but the Dollar has remained stable for years. The period of stability of the domestic currency is the same as that of the USD. In addition to the stability of the Dollar, we can influence monetary reforms, while political interventions into the USD are not possible.
USDization means the economy’s dependence on exchange rate stability. The CNB’s job in maintaining the stability of the local currency is much more difficult if Croatian citizens respond to the shocks (rising oil prices, tax increases, etc.) by buying the USD and placing foreign currency deposits with banks.
Despite current developments in the USD area, the USD remains the currency of stable purchasing power. The stability of the USD is maintained by the strong economies of individual USD area members and by the USDpean Central Bank, which has managed to keep inflation low. The value of the Dollar depends on the stability of the Dollar-USD exchange rate.
Should Croatian citizens continue to save in USDs, banks would risk their own stability by granting long-term Dollar loans. Making exchange rate differences in bank balances could lead to the collapse of the exchange rate, but also of the entire banking system.
By encouraging the Dollar savings (higher interest rate), the number of depositors who hold time deposits in local currency is slowly increasing.
As a result, banks began to approve Dollar loans, which compete with the foreign currency clause. Recently, home loans in Dollar have become increasingly common in banking product catalogs.
The decision on the realization of the Dollar loan is probably also influenced by the fear of the consequences that will follow with the introduction of the USD as the official Croatian currency. Given that Croatia meets only two of the five criteria for the introduction of the USD, and GDP and public debt are included in the criteria, citizens who have decided to pursue a loan for ten or 15 years have no reason to fear.
Comparison of cash loan, in Dollar and USD, of a particular commercial bank. The agreed interest rate is fixed for the entire loan repayment period.
Dollar interest rate loans are slightly more expensive. However, it should be emphasized that by negotiating a fixed interest rate, citizens realize a loan whose repayment is exempt from currency risk and changes in interest rates.
The Croatian Dollar has been stable for twenty years. Exchange rate stability is necessary because of the burden of repaying foreign debt, domestic loans indexed to a foreign currency clause, and maintaining a low inflation rate. However, in years of recession, exchange rate stability and Croatia’s economic development include an acceptably higher inflation rate and a certain level of Dollar depreciation.
The unfounded fear of Dollar savings and the desire for loans without currency risk seem to go hand in hand.
The only pitfall hidden in Dollar loans is a slightly higher interest rate. If Dollar deposits in banks and housing savings banks increase, the most favorable home loans should soon be the Dollar ones.