Croatian financial system

Published: 30/6/2015 Modified: 10/2/2016
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 credit institutions play a dominant role. Their activities are regulated and supervised by the Croatian National Bank.

The kuna is the legal tender in the Republic of Croatia. As regards the payment system of the Republic of Croatia, 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.

On the money market, the banks collect liquidity surpluses (up to a year) and lend them to natural and legal persons. The banks engage in interbank liquidity lending on the so-called interbank market and on the money market they trade with other non-bank legal persons. They can do that either directly or through the Zagreb Money and Short Term Securities Market d.d. (also known as the Zagreb Money Market, ZMM).

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 Croatian National Bank 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.

For the purpose of implementing the established monetary and foreign exchange policies, the Croatian National Bank may issue its own securities denominated in domestic or foreign currency and may enter into agreements on purchasing, selling and exchanging securities and other readily marketable financial instruments as well as rights and obligations related to and arising from them. In this way, the Croatian National Bank becomes a participant in the money and foreign exchange market, when necessary, and influences the liquidity in the domestic financial market and foreign exchange rates by use of the set of instruments at its disposal. In view of the openness and a high level of euroisation of the Croatian economy, the maintenance of relative exchange rate stability is the CNB's key tool in the maintenance of overall macroeconomic stability. Consequently, the central bank strives to prevent excessive fluctuations in the nominal exchange rate both directly, by means of foreign exchange market interventions, and indirectly, by influencing bank behaviour through administrative and prudential measures.  

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).

Assets and relative shares of financial intermediaries, in million HRK and %


1 Supervisory data (they may differ from monetary statistics due to the consolidation). Data for 2014 refer to unaudited reports.

2 From 14 April 2008 on, members of this fund may sell their shares. Up to this date, the fund was closed for payments.

Sources: CNB and HANFA.


The most important financial intermediaries in the Republic of Croatia are credit institutions, which accounted for around 73% of financial sector assets at the end of 2014. Banks are the most important credit institutions (accounting for 71.5% of financial sector assets at the end of 2014) and 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, where they represent the most important source of finance to the economy. In addition to banks, credit institutions of the Republic of Croatia comprise also housing savings banks and savings banks. 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.

Insurance corporations and pension funds together account for around 20% of financial sector assets (data for the end of 2014), and their operations are regulated and supervised by the Croatian Financial Services Supervisory Agency (HANFA). Following the banks, mandatory pension funds are the second most important financial intermediaries in the Republic of Croatia. They were established within the pension reform that began in 1999, which, in addition to the public part of the pension system (first pillar – intergenerational solidarity) introduced the second pillar of individual capitalised savings and the third pillar of voluntary capitalised savings. Ongoing payments by second pillar members and still negligible payouts have generated a steady increase in assets of these intermediaries. Furthermore, their assets have also grown thanks to yields resulting from their investment policy. The MIREX index represents a performance measure of mandatory pension funds. In August 2014, three categories of pension funds were introduced within the existing system (A, B and C), differing according to limits on investments and investment strategy, with C funds being the most conservative. As a result, instead of the uniform MIREX index, separate MIREX indices broken down by these three categories have been published since that time. Though their share has grown in the last several years, voluntary pension funds still hold a relatively minor share in financial sector assets. Insurance and reinsurance corporations hold the third position in terms of their significance for the financial sector. The main purpose of insurance is to transfer risks in the environment from an individual to an insurer, where the largest share of the gross premium charged is accounted for by non-life insurance, in particular motor vehicle liability insurance.

The third group of financial intermediaries (which together account for around 8% of sector assets) comprises: investment funds, leasing companies, factoring companies and credit unions. Investment funds are groups of assets managed by investment fund management companies on the basis of a fund's Articles of Association and the Investment Fund Act. Investment funds may be open-ended or closed-ended, depending on whether the number of units in a fund is definite or not. Leasing is the business of granting use or control of property without a change in ownership. Depending on whether it creates a long-term liability for a lessee or for a lessor, leasing may be operating or financial. Factoring is a form of short-term commercial financing based on the sale of debts by one party to the other at a discount. Apart from credit unions, which are financial intermediaries with a marginal share in the financial market and which are supervised by the Croatian National Bank, the operation of intermediaries in this group is regulated and supervised by the Croatian Financial Services Supervisory Agency (HANFA). The HANFA regulates and supervises the operations of financial auxiliaries, 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 institutions and financial auxiliaries, most notably the State Agency for Deposit Insurance and Bank Resolution (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 Republic of Croatia, 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 Affiliates (REGOS) and the Financial Agency (FINA), which provide specific auxiliary services to other participants in the domestic financial market.

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).