{
  "title": "Republic of Croatia: Selected Issues",
  "publication": "IMF Staff Country Reports, July 29, 2024",
  "sourceUrl": "https://www.imf.org/en/publications/cr/issues/2024/07/26/republic-of-croatia-selected-issues-552566",
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  "summary": "This Selected Issues paper explains corporate sector balance sheet vulnerabilities in Croatia. It serves as a background analysis to the systemic risk assessment presented in the staff report and follows established approaches to stress-test the corporate sector.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- This Selected Issues paper analyzes corporate sector balance sheet vulnerabilities in Croatia and serves as a background analysis to the systemic risk assessment presented in the staff report.\n- The paper follows established approaches to stress-test the corporate sector."
    },
    {
      "heading": "Key findings on corporate sector health and trends",
      "content": "- Croatian firms have significantly improved their balance sheets since the prolonged recession after the Global Financial Crisis.\n- Improvements were helped by deleveraging and narrowing country risk premium as Croatia advanced its euro adoption agenda.\n- Declining borrowing costs and improving financial strength of nonfinancial corporations (NFCs) in Croatia point to the need to examine both financing and nonfinancing related obstacles."
    },
    {
      "heading": "Stress-test design and calibration",
      "content": "- The calibration of shocks follows the macro-financial scenarios of the 2023 EU-wide banking sector stress tests by the European Banking Authority.\n- The paper applies micro-level simulations to assess corporate resilience to adverse shocks to profitability and financing costs."
    },
    {
      "heading": "Simulation results and systemic implications",
      "content": "- Micro-level simulations confirm the resilience of the corporate sector against adverse shocks to profitability and financing costs.\n- The well-capitalized banking sector overall is found to have buffers to absorb negative spillovers from the corporate sector.\n- Simulated results suggest that shocks to nonfinancial corporations (NFC) could significantly raise banks’ nonperforming loans."
    },
    {
      "heading": "Policy implications and areas for further analysis",
      "content": "- Given the resilience identified, policy focus should include monitoring and preserving corporate deleveraging gains and low borrowing costs.\n- The potential for NFC shocks to raise banks’ nonperforming loans indicates a need for continued vigilance in bank supervision and macroprudential oversight.\n- The declining borrowing costs and improving NFC financial strength imply that policy analysis should examine both financing-related and nonfinancing-related obstacles to firm performance and investment.\n\nRepublic of Croatia: Selected Issues, July 29, 2024.\n\n---\n\n Content in this bundle\n\n- Republic of Croatia: Selected Issues; IMF Country Report No. 24/247; June 26, 2024\n  - Republic of Croatia: Selected Issues; IMF Country Report No. 24/247; June 26, 2024 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Republic of Croatia: Selected Issues; IMF Country Report No. 24/247; June 26, 2024 (PDF){rel=\"external\" type=\"application/pdf\"}"
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    "Published: July 29, 2024",
    "Series: IMF Staff Country Reports",
    "DOI: https://doi.org/10.5089/9798400285400.002",
    "This Selected Issues paper analyzes corporate sector balance sheet vulnerabilities in Croatia and serves as a background analysis to the systemic risk assessment presented in the staff report.",
    "The paper follows established approaches to stress-test the corporate sector.",
    "Croatian firms have significantly improved their balance sheets since the prolonged recession after the Global Financial Crisis.",
    "Improvements were helped by deleveraging and narrowing country risk premium as Croatia advanced its euro adoption agenda.",
    "Declining borrowing costs and improving financial strength of nonfinancial corporations (NFCs) in Croatia point to the need to examine both financing and nonfinancing related obstacles.",
    "The calibration of shocks follows the macro-financial scenarios of the 2023 EU-wide banking sector stress tests by the European Banking Authority.",
    "The paper applies micro-level simulations to assess corporate resilience to adverse shocks to profitability and financing costs.",
    "Micro-level simulations confirm the resilience of the corporate sector against adverse shocks to profitability and financing costs.",
    "The well-capitalized banking sector overall is found to have buffers to absorb negative spillovers from the corporate sector.",
    "Simulated results suggest that shocks to nonfinancial corporations (NFC) could significantly raise banks’ nonperforming loans.",
    "Given the resilience identified, policy focus should include monitoring and preserving corporate deleveraging gains and low borrowing costs.",
    "The potential for NFC shocks to raise banks’ nonperforming loans indicates a need for continued vigilance in bank supervision and macroprudential oversight.",
    "The declining borrowing costs and improving NFC financial strength imply that policy analysis should examine both financing-related and nonfinancing-related obstacles to firm performance and investment.",
    "**Republic of Croatia: Selected Issues; IMF Country Report No. 24/247; June 26, 2024**"
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