INTERBANK DEPOSIT MARKET RELEVANCE FOR CROATIAN BANKING SYSTEM SUSTAINABILITY

Existence, functionality and sustainability of the interbank deposit market signifi cantly determinate bank’s asset and liability management (ALM) potentials and thus an overall banking sector performance. Among other numerous factors in the banking business, key roles of the interbank deposit market like availability of short-term liquidity sources, ensuring investment and lending opportunities as well as allowing hedging potentials, considerably contribute to commercial bank’s risk – return profi le formation. In such a manner, the research objectives of this paper are twofold and include theoretical explanation and empirical examination of the impact of the interbank deposit market development to Croatian banking system performance. In addition, key relations between the interbank deposit market and connected risks are imbedded in developed model. Direct dependence of Croatian banking sector’s sustainable development on the interbank deposit market’s stability is evidenced on the empirical data from the 2002-2009, with remark that the presence of high-rated foreign owned banks signifi cantly decreased related risks. Even in the absence of the extreme risk events on the interbank deposit market, Croatian banking system is constantly vulnerable on the systemic risk in a form of fund transfer prices’ growth. Therefore, empirical results of this research and presented conclusions might be useful for management structures of commercial banks as well as for the national banking authorities.