Banks Croatia: Macro profile Moderate -

...Croatia's (Ba1 stable) "Moderate -" macro profile is supported by the country's progress in strengthening its institutional capacity since acceding to the EU and the policy anchor for further economic and institutional reforms following its entry into the European Exchange Rate Mechanism (ERM II). Deeper European integration is promoting reforms and reducing foreign-currency debt risk. The country also benefits from relatively low political risk and a disciplined approach to achieving kuna/euro exchange-rate stability. However, these considerations are partly offset by high growth volatility, the economy's lack of diversification, still-modest long-term potential growth, in part driven by Croatia's unfavourable demographics, and elevated government funding requirements. Our assessment incorporates the risks related to credit conditions, including a high proportion of unsecured household debt; high corporate debt compared with peer countries, together with a slow debt recovery process; and...

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