Moody's: Stable view for Croatia banks

The stable outlook for Croatia banks reflects a strengthening system with a high level of participation of foreign banks, although the sector remains relatively over-banked, Moody's Investors Service said in a new banking system outlook on Croatia.

The high level of foreign investment in the Croatian banking system supports the banks' franchise development and strengthens the sector in terms of enhanced corporate governance practices and transparency, the agency said. Efficiency levels and risk management techniques also have been enhanced and up-to-date products and services have been introduced, Moody's said in the report. Strategic investors - typically investment-grade Western European institutions committed to gaining a foothold in the region - are expected to provide financial support to their subsidiaries in case of need.

However, Moody's said, Croatia remains somewhat over-banked. Although further consolidation and the exit of weaker players would improve the quality and stability of the system, the agency said it expects no dramatic change in this respect over the medium term. Nonetheless, the system remains highly concentrated, with the two largest banks controlling about 43% of assets at the end of 2005. Zagrebacka banka dd, owned by Italy's UniCredito, continues to dominate the market with a 24% market share, Moody's said.

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