Wednesday Column - Croatia Business 5: The Banking System
The number of recent changes in the names of High Street Banks suggests that the Croatian banking system is going through a period of rapid change. Statistics tend to confirm this. In September 2o03 there were 20 foreign owned banks, 21 private Croatian owned banks and 2 state owned banks. Back in 1999 the numbers were 13, 30 and 10 respectively. For a nation that generally seems to resist the pressure to privatise, Croatia seems to have embraced the principle of foreign and independently owned banks, and I suppose that, by now, the number of foreign owned banks may be larger than the number of locally owned banks, state or private. Going from 10 state owned banks to just 2, over 4 years, shows that it can be done! Perhaps of more significance is the fact that the 20 foreign banks in existence, in September 2003, owned 90.8% of the total banking assets, compared with 39.9% in 1999. In general it seems to be the Austrian banks that are the most active, both on the acquisition trail, and in investing in a range of Croatian businesses.
The Croatian National Bank is wholly owned by the state. In principle, it operates independently but is responsible to Parliament. It has a very demanding job which includes, on top of the normal banking operations, maintaining the stability of prices and formulating and implementing foreign exchange and monetary policy. It has achieved these aims with some success over recent years, keeping inflation low and the exchange rate steady. External debt and the country’s balance of payments have proved more difficult to manage but are not part of its direct remit.
The legal framework for the banking system was largely brought in line with EU models by a law passed in 2002. Croatian banks do not seem quite as obsessed with money laundering regulations as their Western European partners so let's hope it strikes a more sensible balance when it addresses this issue. Practically it’s relatively easy for individuals to open a bank account though there’s a bit more paperwork for businesses. That’s where simplicity stops.
It is difficult to make payments in a different currency from the one your account is nominated in, so most companies have an account for each currency. It’s also sometimes difficult to make payments overseas due to foreign exchange rules. If operating from a company, be prepared for a grilling by Fina (the state owned audit body) and to withhold 15% on payments for services to foreigners. Cheques are not widely used, instead you have something like a bank giro credit, similar to the old Irish method. Credit cards are reasonably ubiquitous but not so widely accepted as in the UK, but there are more than enough ATM’s - just as well for a country where cash still remains King. Mortgages are generally not available, loans are hard to get unless you're a very large company, and leasing is slowly developing but mostly restricted to traditional assets with a reasonable resale value.
The Croatian banking system is reminiscent of the UK banking system some 5 to 10 years ago, in terms of organisation and technology. Internet banking is coming in, mostly via the foreign owned banks, but only very slowly. The lack of queuing systems in most banks is a constant source of stress – remember the days you had to try and pick which queue was going to move the fastest and always failed? And there’s rarely a chance to conduct your business privately - usually at the counter in full view. Despite that, there’s a reasonably efficient, if sometimes officious service, but little sign yet of banks proactively competing for business.