Almost a year has passed since the signing of the memorandum between the CNB, the Ministry of Finance and commercial banks, which was supposed to enable as painless a ‘migration’ from the so-called tacit overdrafts on current accounts on the so-called allowed overages, which better protect consumers.
Most bank clients in Croatia have silent overdrafts, and the bank can cancel them at any time and thus put the client in the awkward situation of having to close the deficit. In addition, banks collect a large fee for this expensive product, so they have until the end of June to provide clients with new conditions for using the permitted minus.
However, not even 20 days before the expiration of that deadline, most banks did not do so.
One more year to revise
According to the answers received by Novi list, some of the banks expressly stated that the amount of the offered allowed overdraft will be equal to the amount of the current tacit overdraft of an individual client.
Some banks, however, did not talk about the amount of the offer, but about how the client will be able to contract this new overdraft.
When the offer comes to them, clients have one more year to accept it or not (until June 30, 2024). Until then, they will mostly be able to use the current tacit minus.
In short, the minuses will only be revised over the next year.
Whole or half?
Although commercial banks, when asked individually, say that clients will be able to keep the full amount of the minus even when it becomes permissible, the Croatian Association of Banks still mentions the phrase “at least half” when replacing one minus with another, so it seems that there is a possibility that minuses are halved.
“In accordance with the provisions of the Memorandum of Understanding regarding current account overdrafts, individual banks have sent individualized offers to their clients, in such a way that, in the invitation of each consumer, the beneficiary of a tacitly accepted overdraft is informed of the possibility that his tacitly accepted overdraft, and depending on the bank’s decision, in full or at least up to half of the total amount of the replacement with a permissible overdraft, with all essential conditions specified,” states HUB.
HUB says that most banks are in the final stage of preparations for sending individualized offers and that they will send them to clients no later than June 30 of this year, as stipulated in the Memorandum. They also say that banks have been applying the EKS limit to tacit overdrafts since September 1 last year, as prescribed for permitted overdrafts.
For overdraft loans, the average interest rate in April was 5.30 percent, according to HUB.
Decisions by banks
Zagrebačka banka reminds that “on June 30, 2023, the deadline for the transition from tacit to permitted overdrafts does not expire, but the deadline for sending offers to clients.” The deadline for accepting offers is June 30, 2024. They are in the process of sending offers that clients will receive by June 30, 2023. They also note that the existing overdraft amount will not be changed, except at the client’s own request, and that cancellation of the overdraft is possible only in the event complete loss of income.
From June 19, 2023, Privredna banka Zagreb will introduce a permitted overdraft with a current account in euros. By the end of the month at the latest, the existing users of the silent overdraft will be sent an offer to switch to the permitted overdraft, by concluding an agreement on the permitted overdraft. Until the conclusion of the contract, but not later than June 30, 2024, existing customers will be able to use the silent overdraft. The interest rate on the used overdraft amount in PBZ is 5.94 percent fixed.
Erste Bank says that, apart from the regular process, the bank did not ask customers to close or reduce silent overdrafts. By June 30, the bank will send clients who have a silent overdraft an offer to switch to an allowed overdraft in an amount equal to the amount of the approved silent overdraft. The transition to the permitted overdraft will start on June 30, 2023 and will take place for 12 months. As of June 30, 2023, Erste is introducing a permitted overdraft in its offer, and all new clients will be able to contract a permitted overdraft, while existing clients will be able to use their tacit overdraft until they contract a permitted one, no later than June 30, 2024.
OTP banka announces that at the end of June 2023, all clients with a tacit overdraft will receive a written offer from the bank that they can fully replace their tacitly accepted overdraft with an allowed overdraft. The deadline for accepting the offer is 12 months, that is, until June 30, 2024. The bank will offer the same amount of the allowed overdraft to all clients who come to regulate their tacitly accepted overdraft by the specified deadline. Clients just need to come to any branch as soon as possible and agree on the allowed overdraft. No additional documentation is required and no additional conditions need to be met. Currently, the single interest rate on all silent overdrafts in this bank is 5.58 percent. OTP Bank notes that if the user does not regulate the transition to the permitted overdraft by June 30, 2024, the bank will cancel the user’s overdraft from July 1, 2024. In this case, the bank will notify the user 30 days in advance and enable him to return the canceled amount by approving installment loans.
HPB offers users of the existing tacit overdraft the possibility of replacing it in its entirety and switching to the permitted overdraft. Clients will have the option of replacing the tacit overdraft with an allowed overdraft until June 30, 2024. As of July 1, 2023, HPB will stop offering the tacit overdraft product for current accounts.
A problematic product
Minuses were traditionally an expensive product, with interest rates reaching up to 18 percent. They now range between 5 and 6 percent, lower than the current maximum effective interest rate for this product of 7.5 percent, and are one of the few loans where the interest rate has not increased, in line with the general trend of rising interest rates. However, as the key rates, i.e. the rates on all loans, will rise, the rates on minuses will probably also rise.
So far, it seems, the banks do not want to draw attention to this product with interest, which they themselves made problematic, massively introducing tacit overdrafts, which greatly exposed clients to risk, so the CNB decided to “return things to the beginning”, that is, ask them to transfer everything again on permitted overdrafts, while lowering the interest rate, and yet not to deny citizens who use minuses. By themselves, minuses are problematic if they are constantly used, regardless of the interest rate.
