At the beginning of the year business contracted above all due to the

At the beginning of the year business contracted

This preview shows page 48 - 49 out of 222 pages.

thirds of the lending volume at the close of the year. At the beginning of the year, business contracted, above all due to the possibility created by law to prematurely repay foreign cur- rency loans at non-market exchange rates. Lower demand for loans as well as more restrictive lending policies for new loans amplified the downward trend in the further course of the year. The granting of new loans denominated in Swiss francs had already been discontinued in 2009, and in 2012, their share in total loans to customers decreased from 51.6% to 48.8%. In the loan approval process an even greater weighting was given to liquidity, to cash flows of companies and to disposable incomes of private households. Asset quality continued to deteriorate in 2012, although the in- crease of the NPL ratio slowed significantly in the second half of the year. At year-end 2012, non-performing loans to customers accounted for 25.4% of the total portfolio. In contrast to preceding years, it was especially the retail business that was affected by the negative trends as regards loans to private customers as well as financing for small businesses. NPL coverage by risk provisions was 64.1% at the end of 2012. CROATIA The Croatia sub-segment comprises the retail and SME business of Erste & Steiermärkische Bank, commonly referred to as Erste Bank Croatia, and its subsidiary Erste Bank Montenegro. It serves approximately one million customers through a state-of- the-art network of 150 branches and well developed distribution channels, such as internet and mobile communications and ATMs. With double-digit market shares in all key product categories, Erste Bank Croatia is one of the major banking institutions in Croatia. In addition to banking services, Erste Bank Croatia also occupies strong market positions in a wide range of other finan- cial services, such as fund management, pension funds, brokerage and leasing. Economic review Following a temporary stabilisation in the previous year, Croa- tia’s economy faced cyclical and structural headwinds in 2012. Contracting economic activity in many European Union member states adversely affected Croatia’s domestic economy. Low pri- vate consumption and investment activity weighed on the per- formance of the economy. Real GDP contracted by 2.0% and GDP per capita stood at EUR 10,300 at the end of 2012. Domes- tic demand remained weak throughout the year, impacted by low consumer confidence and a further rise in the unemployment rate to 15.4%. While tourism showed gains compared to the already good season in the previous year, the comparably weak interna- tional competitiveness was reflected in insignificant net exports. European Union accession negotiations were successfully com- pleted and Croatia is expected to join the European Union on 1 July 2013. Reflecting higher food prices, a hike in VAT rates, and higher energy costs, inflation rose to 3.4% in 2012. Irrespective of the country’s high use of the euro, the nominal exchange rate was kept relatively stable throughout the year. Fiscal policy measures contained the negative budgetary consequences of the recession.
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