The central bank's new regulation which would limit the so-called tacit overdrafts the same way authorized overdrafts are already regulated will result in improved consumer protection, but also might hurt bank revenues by more than 100 million kuna (€13.3 million) annually, governor Boris Vujcic told reporters on Thursday.

Addressing a news conference on Thursday, Vujcic said he intended to meet with banks and noted that the final form of the bill had still not been defined.

Vujcic said that the central bank’s analysis of the overdraft market launched in 2020 showed that a large portion of overdrafts had changed from the regulated authorized kind into the so-called tacit overdrafts – overdrafts that aren’t formally contracted between clients and banks, and which are therefore unregulated.

With authorized overdrafts, the effective interest rate is capped and banks have the obligation, when opting to cancel that service, to offer their client the option to repay their debt in 12 monthly installments.

“This forthcoming bill is an attempt to set a maximum effective interest rate (on tacit overdrafts) and make banks offer repayment in installments if their clients get into problems. Banks can do that now, but they are not obliged to do so. In the future, they will have to do just that,” said Vujcic.

New agreements on tacit overdrafts will thus have to be limited to 90 days and 1,500 (€200), and Vujcic said that the new bill might result in a drop in bank revenues of 100 million kuna (€13.3 million) annually. Depending on the type of loan, wage and overdraft amount, consumers would be able to save 150-450 kuna (100 million kuna (€20-60) a year.

Vujcic said that the matter was a very complex and sensitive one and that putting a cap on the interest rate was not, as believed by some, necessarily the best solution because it could exclude a large number of citizens from the market.

He noted that interest rates should reflect product-related risks and that in principle tacit overdrafts indeed entailed the most risk as there was no collateral and the client’s creditworthiness was not checked, hence the high interest rate.

He added that interest rates on tacit overdrafts in Croatia were lower on average than in EU countries that had not introduced the euro and higher than in those that were part of the euro area, but that that was not the case with other financial products.

Speaking of inflation, Vujcic said that there was no risk of very high inflation rates.

“However, in the euro area the inflation rate is slightly higher than forecast but we are still between 2% and 3%, which should not be worrying,” he said.