Determinates of Banks' Interest Rates on Long-Term Kuna Credits Indexed to Foreign Currency to Enterprises in Croatia

Croatian capital market is extremely bank-based market where most companies, in addition to its own internally generated funds, are financed primarily by borrowing from banks. Banks in Croatia are mainly focused on financing the household population while the proportion of funds that are approved to enterprises is significantly smaller. In such circumstances, banks gain a privileged position because the lender (bank) prefers financing the population sector, and the debtor’s (the enterprises’) only potential source of external financing is, again, the bank. The bank, in such a business environment, defines the basic conditions of financing such as interest rates on loans. The aim of this paper is to examine any possible influence, as well as means and intensity of influence, of certain variables in defining the interest rate on banks' interest rates on long-term kuna credits indexed to foreign currency to enterprises. The variables whose influence is being examined are the general government debt, banks' reserve requirement in HRK and in foreign currency, banks' interest rates on long-term kuna credits not indexed to foreign currency, households foreign currency deposits, nonfinancial corporation foreign currency deposits with credit institutions, midpoint exchange rate HRK/EUR. Given results will lead to a conclusion about the influence of the aforementioned variables on determining interest rates of long-term HRK credits indexed to foreign currency that banks lend to enterprises in Croatia.