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Croats seek funds close to home

With EU accession for Croatia still a few years away, the country’s financial authorities are focusing their attention on developing the local bond market. Oonagh Leighton reports.

By Oonagh Leighton

IN FEBRUARY, RAIFFEISENBANK’S Croatian subsidiary became the first corporate in five years to tap the local kuna-denominated domestic bond market, with a five-year K600 million (€80 million) issue. The deal is small but it is highly significant. It is only the second time that a bank has raised money via local currency bonds and is a signal that Croatia’s corporate kuna-denominated debt market is coming to life.

“Improving liquidity and low interest rates are making the conditions for local funding very favourable right now,” says Hrvoje Dolenec, head of research for Raiffeisenbank in Zagreb. “Banks’ deposits are growing at a rate of around 10% and loans by 15% to 20%. This gap needs to be filled.” Dolenec adds that new restrictions on foreign borrowing by banks, introduced by the central bank in January 2006, mean that the domestic market is attracting increasing attention as an alternative source of financing.

Although the Croatian financial system is still dominated by commercial banks, the domestic bond market is gaining in popularity. For now the market remains very small and is dominated by government issues, but corporates are waking up to its potential as a source of financing, and a pipeline of deals is developing.

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