Updated 16 February 2011

A country's currency, payment system, financial markets, financial institutions and institutions regulating and monitoring their operations make up its financial system. In the financial system of the Republic of Croatia, the banks play a dominant role. They are the most active of all financial institutions in the country, both in terms of the payment system and their presence on all the three financial markets: money, foreign exchange and the capital markets.

Their activities are regulated and supervised by the central bank - the Croatian National Bank (CNB).

Kuna is the domestic currency of the RoC. As regards the payment system, all domestic and cross-border cashless payment transactions of natural and legal persons are conducted through the banks. Interbank cashless payment transactions are conducted through the CNB. The CNB can influence through the banks the amount of currency in circulation and it is the institution responsible for the regulation and supervision of the domestic payment system.

The banks' role on the capital market is twofold. While directly lending capital to natural and legal persons who have no direct access to the capital market, they also invest in capital market instruments issued by legal persons with direct access to that market. Other natural and legal persons can invest in capital market instruments through mediation of licensed brokers who trade in such instruments on the Zagreb Stock Exchange (ZSE). The responsibility for due settlement of securities purchase and sale transactions on the domestic market lies with the Central Depository & Clearing Company (CDCC).

Banks meet domestic demand for foreign currency as well as foreign demand for kuna on the foreign exchange market. Authorised exchange offices, whose business is regulated by the CNB and supervised by the Foreign Exchange Inspectorate of the Ministry of Finance, are also active participants in this market. Authorised exchange offices are used for the trade in foreign cash and checks of natural persons, while banks, in addition to this function, also execute all other types of trade in foreign currency with natural and legal persons. Banks (and the government) sometimes trade in foreign currency with the CNB, either directly or through the so called foreign exchange auctions, used by the CNB to regulate the price of the domestic currency on the foreign exchange market.

In addition to banks, the banking sector of financial intermediaries in the RC comprises also housing savings banks, savings banks and credit unions. Housing savings banks encourage national savings and help meet housing needs by collecting annuity-type savings from natural persons with the primary goal to lend the accumulated funds back to them in the form of affordable housing loans, after an accumulation period of predetermined length. Savings banks and credit unions are the result of the transformation of savings and loan cooperatives, and their operations are regulated and supervised by the CNB.

The Croatian Bank for Reconstruction and Development (CBRD) is a development and export bank established with a purpose of providing loans for the reconstruction and development of the Croatian economy. The interests of the banking sector are represented to the supervisory and regulatory institutions as well as to the public by the Croatian Banking Association (CBA) and the Banking Association with the Croatian Chamber of Economy (CCE).

The non-banking sector of financial intermediaries comprises insurance companies, leasing companies, pension fund management companies, and investment fund management companies, all regulated and supervised by the Croatian Financial Services Supervisory Agency (HANFA). HANFA is also responsible for regulating and supervising the operations of auxiliary financial institutions, such as brokerage companies, investment consulting companies, regulated stock exchanges, insurance underwriters, etc.

In addition to activities of the CNB and HANFA, the responsibility for the smooth functioning of the Croatian financial system also depends on the activities of other supervisory and regulatory and auxiliary financial institutions, most notably the State Agency for Deposit Insurance and Bank Rehabilitation (DAB), an institution responsible for the supervision of deposit guarantee schemes of banking financial intermediaries, and the Financial System Directorate of the Ministry of Finance of the RC, responsible for drafting legislative proposals in the area of financial services, in cooperation with other institutions. There are also institutions such as the Croatian Registry of Credit Obligations (HROK), the Central Registry of Insured Persons (REGOS) and the Financial Agency (FINA), which provide specific auxiliary services to other participants in the domestic financial market.