Croatia's central bank released issued a recommendation to local banks on Thursday calling for tighter requirements for clients asking for general purpose cash loan, and also called on consumers to be more prudent when taking out new loans.

In its press release, the central bank said that the sharp increase in general purpose loans issued to consumers over the past two years was a major factor in the increasing household debt, accounting for about two thirds of the total debt increase.

General purpose loans totalled 47.7 billion kuna (€6.4 billion) in December 2018, accounting for nearly 40 percent of all household lending, up from 33 percent in 2016.

The continuing increase in general purpose loans is thought to indicate increased personal spending, but is also attributed to consumers attempting to avoid red tape associated with other purpose-specified loans, which, in spite of offering lower interest rates also require mortgages or other types of collateral.

According to recent data compiled by the central bank, the volume of such cash loans has been growing at double the rate compared to other types of loans, with on average 3.5 percentage points higher interest rates.

Central bank governor, Boris Vujcic, said late last year that the very high growth of cash loans with relatively long maturities and no collateral is cause for concern, adding that the central bank is prepared to intervene if the share of such potentially bad loans grows large enough to potentially jeopardise the stability of the local banking system.

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