23/10/2023

Hanfa Council meeting: Croatian pension system receives positive international rating

At today's meeting, the members of the Council of the Croatian Financial Services Supervisory Agency (Hanfa) discussed, among other things, the exposure of the financial services sector to systemic risks, key components of sustainable finance and ESG factors, distribution of units in UCITS in bank branches and current developments in the capital market.

The overall systemic risk assessment of the financial services sector decreased in the first nine months of 2023, but remains in the increased systemic risk zone. The inflation slowed slightly, while favourable labour market conditions contributed to reducing systemic risks in the macroeconomic environment. Croatia's accession to the euro area reduced the currency risk and overall exposure of the financial services sector to systemic risks, and had a positive impact on Croatia's credit rating, which was improved by all three agencies in mid-2022 and upon completion of the euro area accession process. In a context of high macroeconomic, monetary, financial and geopolitical risks, the main risks to the domestic financial services sector remain interest and market risks.

When considering current developments in the field of sustainable finance, it was particularly pointed out that such financing has become imperative today and plays a key role in the long-term protection of markets and society. It entails not only “green” financing but also a process of considering and taking into account environmental, social and governance (ESG) factors when making investment decisions and requires new approaches and strategies to ensure a sustainable future. Members of the Council also learned about the perceived challenges faced by companies in the insurance market in the ESG context. The current market situation in Croatia shows that out of a total of eight insurance companies that have insurance-based investment products in their portfolio, only two products promote environmental and social features, and no products on the Croatian market aim at sustainable investment. Notwithstanding the complex and comprehensive regulations covering many companies' business processes, which are continuously being complemented and evolving, Hanfa will further encourage companies to invest sustainably and develop sustainability-oriented products.

During the Council meeting, Hanfa representatives held a presentation on the distribution of units in UCITS in bank branches. The trends recorded in the last three years show a significant decrease in the amount of distribution of units in UCITS in the 2nd quarter of 2022, mainly caused by the war in Ukraine and the negative trends in capital markets it triggered, as well as by the rise of inflation and rising interest rates, which negatively affected the returns of bond funds. Hanfa will continue to exercise enhanced control over the application of European regulations, in order to provide investors with better information on the risks of investment products offered by investment firms and investment fund management companies. 

The Council also discussed the current situation in the capital market and the research on the state of the capital market prepared by the CFA Society Croatia. A strategy is being developed based on the research, with tax reforms, market categorisation as emerging market and introduction of investment accounts with tax incentives for investors proposed as key changes needed for development.

The members of the Council were also presented with the analysis of the Croatian pension system according to Mercer CFA Institute Global Pension Index, in which the Croatian pension system received a C+ rating (range A to E). The C+ rating describes a system that has some good features but also has major risks and/or shortcomings that should be addressed; without these improvements, its efficacy and/or long-term sustainability can be questioned. 

The overall rating comprised an assessment of three criteria – adequacy, sustainability and integrity. In terms of adequacy and sustainability, Croatia is somewhat weaker than the integrity criterion, which assesses the integrity and reliability of the system based on regulation, governance, protection, communication and operating costs. Along with Poland, Croatia is the only Central European country considered in this analysis and ranks among some other Western European countries such as France and Spain and ahead of Italy, Austria and Poland. Members of the Council concluded that according to the Mercer scale, the Croatian pension system received a positive international rating. 


Hanfa Council is an advisory body of Hanfa that meets regularly and issues opinions and expert and scientific advice in order to develop and improve supervisory practice. It consists of nine members: the President of Hanfa Board (ex officio), five members appointed by associations of supervised entities at the Croatian Chamber of Economy, and three members appointed by the Government of the Republic of Croatia.

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