IMPACT OF COVID-19 PANDEMIC ON BANKS' BALANCE SHEET - CASE OF CROATIAN BANKING SECTOR

COVID-19 outbreak has shown as an unprecedented challenge that has caused global uncertainty and left a massive impact on human health, modern society and global economy. Severely reduced economic activity had numerous repercussions for companies and households, but also for banking sectors around the globe causing a crisis with unclear consequences. Unlike a number of previous crisis arising from the financial sector itself, this one is truly exogenous and it may be considered as a first real test of the lessons learned after the global financial crisis in 2008. It has affected both banks' financial position and their performance. Banks' balance sheets are undergoing significant changes, both in terms of their size and structure, reflecting the challenging environment they operate in. This paper deals with the impact of COVID-19 pandemic on balance sheet of Croatian banking sector and aims to perceive the possible repercussions of such changes. For this purpose, a comparative analysis of sector's balance sheet and selected indicators before and during COVID-19 crisis was conducted. Croatian banks have entered this unique crisis with a fairly good capital position and liquidity buffers that, together with timely deployed monetary and regulatory measures, enabled banks' business activity during the "new normal" to certain extent. In the first months of the pandemic, while banks were facing increased risks, their balance sheets recorded growth, dynamics and structure of their lending activity as well as deposit liabilities were significantly changed and their capital adequacy ratios were reaching all-time highs. Even though no significant shortfalls are revealed by now, the final coronavirus effects will depend on future developments of multiple factors. Based on the conclusions of the conducted analysis, this paper gives an overall assessment of the Croatian banking sector resilience and underlines the future challenges in post-COVID-19 world.