Economy and Banking Sector of Croatia

Croatia is a country in southeastern Europe, a member of the European Union since 2013.

The major sectors of the Croatian economy are shipbuilding, food processing, chemical industry, information technology, real estate services and tourism. Croatia is still recovering from the global financial crisis of 2008 with government bureaucracy, corruption, and high tax rates making the recovery process even slower.

The banking system of Croatia is characterized by relatively high concentration: competition between the major banks is making it difficult for other banks to compete. Another feature of the Croatian banking system is a prominent share of foreign capital (mainly from Austria and Italy).

Location Southeastern Europe
Population (2016)4 190 669 ↓ (-0.01%)
EU Status member since 2013
Economy
National Currency HRK (Croatian kuna)
    Exchange Rate (2017-02-17) 1 EUR = 7.441 HRK
GDP 
    Nominal GDP (2015)43.9 bln EUR ↑ (+0.02%)
    Nominal GDP per Capita (2015)10 400 EUR ↑ (+0.02%)
    Real GDP Growth (2015)1.6 % ↑ (2014: -0.4 %)
Inflation Rate 
    CPI, MoM (Dec 2016)0.0 % ↑ (Nov 2016: -0.1 %)
    CPI, YoY (Dec 2016)0.7 % ↑ (Nov 2016: 0.2 %)
    CPI, Year Average (2016)-0.6 % ↓ (2015: -0.3 %)
Unemployment Rate (2015)16.3 % ↓ (2014: 17.0 %)
Government Bond Yield (Dec 2016)2.95 % ↓ (Nov 2016: 3.01 %)
Credit Ratings (as of Sep 2016)
    FitchBB speculative, outlook negative
    Moody'sBa2 non-investment grade speculative, outlook negative
    S&PBB non-investment grade speculative
Taxation
Double Taxation Agreements 54 signed agreements
Information Exchange 
    Automatic Exchange starts in September 2017
FATCA IGA in effect since 20 March 2015, Model 1
Banking Sector
Financial Market Development 3.6 (max 7.0) rank: 95th out of 138 countries
    Banks' Soundness 4.9 (max 7.0) rank: 67th out of 138 countries
Banking Industry Country Risk 6(1 - lowest risk, 10 - highest risk)
    Economy Risk 7
    Industry Risk 5
Deposit Guarantee Scheme 
    Maximum Protected Amount 100 000 EUR
Country Ceiling for Deposits 
    Local Currency (Croatian kuna)Baa1 lower medium grade
    Foreign CurrencyBa3 non-investment grade speculative
Deposit Rates (Nov 2016, HRK)1.13 % ↓ (Oct 2016: 1.17 %)
Banking Sector Structure 
    Number of Banks34
    Recent Changes (2016) new banks: 0, closed banks: 1
    Consolidated Assets (2015) 57 588.63 mln EUR ↑ (+1.90%)
Major Banks
 Zagrebacka Banka (UniCredit)  Raiffeisenbank
 Privredna Banka (Intesa)  Splitska Banka (Societe Generale)
 Erste & Steiermärkische Bank  Hrvatska Poštanska Banka (HPB)
 Hypo Alpe Adria Bank
 List of Banks in Croatia

Croatian Economy

National Currency

During the last 11 years EURHRK exchange rate was within the range 7.1049 - 7.6975, reaching its maximum in Jan 2015 and falling to its minimum in Sep 2008.

Euro to Croatian kuna (EURHRK).
Chart 1. Euro to Croatian kuna (EURHRK). Source: ECB.
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GDP

According to Eurostat, nominal GDP of Croatia in 2015 was 43.9 bln EUR.

Croatia underperforms the European Union in terms of real GDP growth with the average annual differential coming to -0.3% over the past 10 years (2005 - 2015). In 2015 real GDP growth was 1.6% which was equal to the Euro Area average (1.6%) and below the European Union average (1.9%). Real GDP growth in 2016 - 2021 are IMF's estimates.

Real GDP Growth in Croatia.
Chart 2. Real GDP Growth in Croatia. Source: Eurostat, International Monetary Fund.

In 2015, nominal GDP per capita in Croatia was 10 400 EUR.

Croatia has a below-average level of wealth in terms of per-capita GDP at purchasing power parity (PPP); this economic welfare indicator has, on average, fell behind that of the European Union by -37.0% over the past 10 years (2005 - 2015). GDP per capita at PPP in 2016 - 2021 are IMF's estimates.

GDP Per Capita at Purchasing Power Parity in  Croatia; European Union = 100.
Chart 3. GDP Per Capita at Purchasing Power Parity in Croatia; European Union = 100.
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Inflation Rate

According to Eurostat, inflation rate in Croatia in 2016 expressed as annual percentages of average consumer prices was -0.6% which was below the Euro Area average (0.2%) and below the European Union average (0.3%). Inflation rates in 2017 - 2021 are IMF's estimates.

Inflation Rate in Croatia.
Chart 4. Inflation Rate in Croatia. Source: Eurostat, International Monetary Fund.
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Taxation in Croatia

Double Taxation Agreements

Double Taxation Agreement (DTA) is an agreement between two or more countries for the avoidance of double taxation.

Croatia signed DTAs which already came info force with the following jurisdictions (for agreements which came into force after 01 January 2013 the date of coming into force is given in brackets):

 Albania
 Armenia
 Austria
 Azerbaijan (Mar 2013)
 Belarus
 Belgium
 Bosnia and Herzegovina
 Bulgaria
 Canada
 Chile
 China
 Czech Republic
 Denmark
 Estonia
 Finland
 France
 Georgia (Dec 2013)
 Germany
 Greece
 Hungary
 Iceland
 Indonesia
 Iran, Islamic Republic of
 Ireland
 Israel
 Italy
 Jordan
 Korea, Republic of
 Kuwait
 Latvia
 Lithuania
 Macedonia
 Malaysia
 Malta
 Mauritius
 Moldova, Republic of
 Montenegro
 Morocco
 Netherlands
 Norway
 Poland
 Qatar
 Romania
 Russian Federation
 Serbia
 Slovakia
 Slovenia
 South Africa
 Spain
 Sweden
 Switzerland
 Turkey
 Ukraine
 United Kingdom
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Information Exchange

There are 3 ways for jusrisdictions to exchange information on tax matters:

  • spontaneously;
  • on request;
  • automatically.

Spontaneous exchange of information is provision of information that is forseeably relevant to another party without a request being previously sent.

Tax Information Exchange Agreements (TIEAs) enable exchange of information on request relating to a specific tax investigation, either criminal or civil.

Automatic information exchange allows jurisdictions to exchange information automatically, without having a specific tax investigation.

Croatia signed the automatic information exchange agreement on 29 October 2014 and committed to start the automatic information exchange in September 2017.

Further Information:
Automatic Exchange of Information on Financial Accounts
Countries Which Will Not Automatically Exchange Account Information

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FATCA

Foreign Account Tax Compliance Act (FATCA) which became law in the United States in March 2010, focuses on reporting made by foreign financial institutions about financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. The FATCA-reporting is facilitated by Intergovernmental Agreements (IGAs).

Croatia has FATCA agreement with the U.S. in effect since 20 March 2015 (Intergovernmental Agreement Model 1). Financial institutions operating in Croatia are required to identify U.S. taxpayers by January 1, 2017 and to report the information for 2017 and the subsequent years. The agreement is reciprocal: Croatian financial accounts hold in U.S. financial institutions will be reported to Croatian authorities.

Further Information:
FATCA and European countries

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Croatian Banking Sector

Financial Market Development

According to World Economic Forum's Global Competitiveness Report 2016-2017, financial market development in Croatia is scored 3.6 out of maximum 7.0 and ranked 95th out of 138 analysed economies. Soundness of banks is scored 4.9 bringing Croatia into the 67th place, trustworthiness and confidence of financial market is scored 4.1 (81st place).

Financial Market Development in Croatia.
Chart 5. Financial Market Development in Croatia. Source: WEF.
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Banking Industry Country Risk

Banking Industry Country Risk Assessment (BICRA) is a methodology designed by Standard&Poor's "to evaluate and compare global banking systems". A BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking systems (group 1) to the highest-risk (group 10). The BICRA methodology has two main analytical components: "economic risk" and "industry risk". Each of the components is then further divided into 3 "factors" that result in an economic and industry risk score for each country.

Croatia is included into group '6' with economic risk scored '7' and industry risk scored '5'.

BICRA Group 6
Economic risk 7
    Economic resilience high
     Economic imbalances high
    Credit risk in economy high
Industry risk 5
    Institutional framework high
    Competitive dynamics intermediate
    Systemwide funding intermediate
Government support assessment supportive

Table 1. BICRA for Croatia. Source: S&P's.

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Deposit Guarantee Scheme

Deposit Guarantee Schemes compensate certain deposits held by depositors of a bank that becomes unable to meet its obligations.

From a depositor's point of view it is important to know:

  • if the depositor is eligible within the terms of the deposit guarantee scheme;
  • if the depositor's bank is a participant in the deposit guarantee scheme;
  • if the depositor's type of deposit is covered by the deposit guarantee scheme.

All these details about deposit guarantee scheme in Croatia are summarised in Table 2.

Scheme Participantsall credit institutions operating in Croatia (including branches of foreign banks), branches of Croatian banks abroad
Eligible Depositorsnatural persons, small entrepreneurs and non-profit organisations
Covered Accountsall deposits
Maximum Protected Amount100 000 EUR
Paid In CurrencyHRK

Table 2. Deposit guarantee scheme in Croatia.

Further Information:
Deposit Guarantee Schemes in Europe

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Country Ceiling for Deposits

Moody's country ceilings for deposits specify the highest rating that can be assigned to local- or foreign- currency denominated deposit obligations of a bank or other deposit taking institution domiciled within that country.

Local currency (Croatian kuna) deposit ceiling for Croatia is set to Baa1 (lower medium grade), foreign currency deposit ceiling is Ba3 (non-investment grade speculative).

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Deposit Rates

In Nov 2016, an agreed annualised deposit rate in local currency (Croatian kuna) of new contracts with agreed maturity up to 1 year between credit institutions and households was 1.13% .

Deposit Rates in Croatia.
Chart 6. Deposit Rates in Croatia. Source: ECB.

Further Information:
Compare Bank Deposits in Croatia

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Banking Sector Structure

Currently there are 34 credit institutions operating in Croatia.

Recent structural changes (2013 - 2016) of the banking sector of Croatia are summarised in Table 3.

2013201420152016
Number of Opened Banks0000
Number of Closed Banks0201

Table 3. Recent structural changes in the banking sector of Croatia.

All the credit institutions operating in Croatia can be classified into several categories. Table 4 summarises the number of banks in each category.

CategoryNumber of Banks
Banks27
Central banks1
Housing savings banks5
Savings banks1

Table 4. Number of banks by category in Croatia.

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