The main principles of international reserves management are safety, liquidity and profitability.
The central bank manages the international reserves of the Republic of Croatia based on the principles of liquidity and safety of investment in accordance with Article 19 of the Act on the Croatian National Bank. In this context, it maintains reserves liquidity and appropriate risk exposure and, within the given restrictions, attempts to ensure favourable rates of return on its investments.
The Croatian National Bank manages international reserves in two ways; one based on its own guidelines and the other on the assumed foreign currency obligations, depending on the way in which international reserves are formed.
The CNB manages the part of international reserves acquired through outright purchase of foreign currency from banks and the MoF, its membership in the IMF and income derived from the investment of international reserves and other CNB assets in line with its own guidelines.
The other component of the reserves, formed on the basis of the Ministry of Finance funds, foreign currency swaps in the domestic market, allocated foreign currency reserve requirements, IMF membership and other assets owned by other legal persons, is managed by the CNB according to the foreign currency obligations assumed, the aim being to ensure protection against currency and interest rate risks.
Results of foreign currency portfolio management
CNB portfolios are divided into held-for-trading portfolios, investment portfolios and assets managed by external managers. Held-for-trading portfolios are denominated in euro and US dollars and are used primarily for daily liquidity maintenance, while the main purpose of the investment portfolio is the maintenance of stable income in the long run.
As held-for-trading portfolios are used for foreign currency liquidity maintenance their average remaining term to maturity is short so as to limit the risk of change in interest rates.
An investment portfolio is a portfolio consisting of bonds with long remaining term to maturity so as to use the steepness of the yield curve and higher interest rates for longer maturities. The main purpose of this portfolio is to provide a relatively stable source of longer-term income.
Assets managed by an international financial institution provide additional diversification and exchange of expertise in international financial investment management.