Which authorities govern banking regulation in Croatia and what is the central bank's role therein?

The main regulator in Croatia's banking sector is the Croatian National Bank (CNB). It is responsible for supervising bank institutions, independent and autonomous, founded and owned by the state. According to the Act on the Croatian National Bank (Official Gazette 75/2008 and 54/2013), the CNB's main objective is to maintain financial stability, while supporting the national economic policy and acting in accordance with principles of the open market economy and free competition. In practice, the CNB strives to keep fluctuations of the national currency (kuna) against the euro under control, both directly, by means of foreign exchange market interventions, and indirectly, by means of administrative and prudential measures.

In addition to the CNB, there are other supervisory-regulatory authorities and financial auxiliaries to enable the smooth functioning of the country's financial system. For example, the State Agency for Deposit Insurance and Bank Regulation (DAB) is responsible for the supervision of the deposit guarantee scheme and the Financial System Sector of the Ministry of Finance is responsible for preparing legislative proposals in the area of financial operations.

The institutions representing the interests of the banking sector in relation to supervisory-regulatory institutions and the public are the Croatian Banking Association (CBA) and the Croatian Banking Association at the Croatian Chamber of Economy (CCE).

The Financial Agency (Fina) is responsible for providing financial and electronic services.

The main regulator for all types of non-banking financial intermediaries on the Croatian market is the Croatian Financial Services Supervisory Agency (HANFA).

What type of licence is required to conduct banking services in Croatia and what is the application process like?

A credit institution (as defined by Article 4(1)(1)1 of the EU Capital Requirements Regulation (575/2013) must obtain a licence to operate from the CNB. The CNB also issues authorisations and approvals necessary for appointing management and supervisory boards, carrying out individual business activities and buying 10% or more shares of a credit institution.

The application process begins with the submission of an application form with the required documentation enclosed, electronically and in paper form. The application and all accompanying documents and information must be submitted in Croatian or include a certified Croatian translation.

During the course of application processing, information available from other sources will also be collected and used (eg, information obtained from other institutions such as the Ministry of Finance, HANFA and the competent supervisory authorities of other countries).

All of the information is then assessed to check whether it meets the legal requirements and to determine the level of risk for the credit institution if the application is granted. Based on such analysis, a written report is made and forwarded to the Licensing Committee, which makes a decision on the application and proposes it to the CNB's competent body. The final decision will be made by the governor of the CNB or its council after a Licensing Committee session. The applicant receives the final decision in written form within the timeframe prescribed by the Credit Institutions Act (Official Gazette 159/2013, 19/2015, 102/2015, 15/2018 and 70/2019).

What forms of bank operate in Croatia and how are they regulated?

According to the Credit Institutions Act, a credit institution with its seat in Croatia may be established as a bank, savings bank or housing savings bank (promoting special-purpose savings and providing household lending).

The operating licence that a credit institution is issued includes authorisation to provide banking services and may also include authorisation to provide basic and additional financial services. The credit institutions eligible for providing banking services in Croatia are:

  • credit institutions licensed by the CNB and having their seat in Croatia;
  • credit institutions from EU member states which have established a Croatian subsidiary or are authorised to provide banking services in Croatia directly; and
  • subsidiaries of third-country credit institutions licensed by the CNB to provide banking services in Croatia.

The Croatian Bank for Reconstruction and Development (HBOR) is a special development and export bank owned and founded by the state.

Pursuant to the Credit Institutions Act and the EU Capital Requirements Regulation, the CNB is the competent body for credit institutions. The CNB also supervises banks' application of the act and is the designated authority in accordance with Article 458(1) of the EU Capital Requirements Regulation with regard to prescribing measures for credit institutions to limit the macroprudential or systemic risk in the financial system.

Does the Croatian regulatory regime distinguish between different forms of bank?

Different forms of bank are considered credit institutions by Croatian law and same provisions apply to them as such.

Which types of legal entity can operate as banks in Croatia? What legal forms are generally used to operate as banks?

The Credit Institutions Act prescribes that financial institutions in Croatia must be established as joint stock companies (dionicko društvo).

Can banks based in other jurisdictions operate in Croatia on the basis of their home state banking licence?

Respecting the provisions concerning the freedom of establishment and the freedom to provide services of the EU Capital Requirements Directive (2013/36/EU) (transposed into the Croatian Credit Institutions Act), any credit institution which is authorised and supervised by the competent authorities of an EU member state may carry out banking activities in Croatia, as in any other member state, either by establishing a branch or by providing services utilising their passporting rights under the same directive.

Describe the current state of the banking market in Croatia

The Croatian banking sector is relatively small, characterised by a small number of banks offering a wide range of services, a high degree of concentration and a high share of foreign capital.

Currently, there are 19 commercial banks operating on the Croatian market: 11 of them are foreign-owned, seven are in domestic private ownership and just one is owned by the state. The foreign banks have the largest share in total bank assets (90.2%), the only commercial state-owned bank Hrvatska poštanska banka holds 5.2%, private-owned domestic banks have a 3.6% share, while the remaining 1% belongs to special non-commercial state-owned banks.

Italian-owned banks account for almost half of total bank assets (48.9%), followed by Austrian-owned banks, which have a 29.9% share.

Over 80% of the sector's total assets belong to the top five banks on the market. The largest profits are realised by Zagrebacka banka, owned by the Italian UniCredit group, followed by Privredna banka Zagreb (Intesa Sanpaolo) and then Erste & Steiermaerkische bank, Raiffeisenbank Austria and OTP bank.

Describe the legislative and non-legislative corporate governance rules for banks in Croatia

Since banks in Croatia are established as joint stock companies, provisions of the Companies Act (Official Gazette 111/1993, 34/1999, 121/1999, 52/2000, 118/2003, 107/2007, 146/2008, 137/2009, 111/2012, 125/2011, 68/2013, 110/2015 and 40/2019) apply. The Companies Act defines companies' operation and activities, management, supervisory and management boards and assemblies thus providing legislative framework to define the role of corporate governance.

More specifically, corporate governance in banks is regulated by the Credit Institutions Act and other by-laws and regulations issued by the CNB and other competent bodies. According to Article 272.p of the Companies Act, joint stock companies whose shares are traded on a regulated market must state in their annual report which corporate governance code they are bounded by or are voluntarily applying. Most Croatian banks are a part of larger international groups which have their own internal corporate governance code. In addition, they are bound by the Corporate Governance Code issued by HANFA and the Zagreb Stock Exchange, applicable to all joint stock companies whose shares are listed on the Zagreb Stock Exchange. The latest code was adopted in October 2019, modernising the previous version published in 2007 and last amended in 2010. The document defines corporate governance and business transparency standards, with the latest modifications focusing on the responsibilities of management and supervisory boards of companies, the diversification of board members, especially regarding gender, and the independency of management and supervisory boards.

Other important pieces of legislation in connection with corporate governance applicable to banks as joint stock companies are the Audit Act (Official Gazette 127/2017) and the Accounting Act (Official Gazette 78/2015, 134/2015, 120/2016 and 116/2018).