This is specially so in emerging markets, where regulatory and political risks heighten the likelihood of default, transaction lead times are long, projects require prohibitively large amounts of start-up capital, and there is limited access to expertise in project development and financing. Second, we need to reduce the risks in marginally bankable transition projects to attract private capital. The return profile on many such projects is not commensurate with the risks facing private financiers or investors. To reduce overall risk and improve bankability, we need more catalytic and concessional funding from the public sector, multilateral development banks, and philanthropic sources. Such funding can be in the form of grants, risk-sharing arrangements, debt at below-market rates, technical assistance, and structuring advice. They can help crowd in additional multiples of private sector funding. But while public capital can potentially do more to mitigate risk, private capital must still bear a fair share of project risk and exercise the appropriate due diligence on project viability and performance. Third, we need to make the financial ecosystem work more synergistically. Banks play a key role as lead managers for financing sustainability projects. However, with limited balance sheets and regulatory capital and liquidity requirements, banks need to offload these loans to institutional investors who have more absorptive capacity. But institutional investors prefer larger deal sizes with a diversified pool of assets to reduce concentration risk. We need to shift towards a portfolio approach to blended finance deals, through the structuring and securitisation of typically illiquid green and transition assets.

Residential real estate prices and lending to the non-financial private sector continue to grow steadily, with no clear evidence of a reversal in the upward phase of the financial cycle. Therefore, the CNB has decided to continue with further tightening of the capital based macroprudential measures. While the muted response of interest rates of Croatian banks reduces the risks to financial stability of sudden, unexpected and until very recently unprecedented monetary policy tightening, it may also weaken the pace of disinflation. However, it is interesting to note that inflation rate in Croatia remained amongst the lowest in Central and Eastern Europe, currently running at 7.9%, despite much lower interest rates. Sugar rush? Rising interest rates will prove to be a boon for the European banking industry – at least in the short term. Profits are already reaching a decade high, not least thanks to the ECB's deposit facility in an environment of abundant liquidity. The banking system is already looking much better than only a few years ago, putting to rest painful memories of the "low for long" period. However, we know that the benefits for banks of rising interest rates are frontloaded, while the costs associated with rising rates are backloaded for a number of reasons. First, the corporate sector has so far managed to benefit from the high inflation environment, but as inflation gradually converges back to target, we might expect the profit share in GDP to revert back to the pre-war level.