This Review offers policy recommendations to improve the legal, regulatory and institutional framework for capital markets in Croatia in a way that will foster a resilient and dynamic business environment, help realise the potential of Croatian corporations and give households better opportunities to diversify their long-term savings.

1. OECD Capital Market Review of Croatia 2021
Capital market reforms for recovery
and improved business dynamics in
Croatia

2. Source: OECD Capital Market Review of Croatia 2021.
Croatia’s capital markets are underdeveloped
compared to EU levels
While Croatian GDP accounts for 0.38% of EU GDP, its capital markets represent a much
lower share. In 2019, Croatia represented only:
• 0.25% of EU stock market capitalisation
• 0.11% of EU corporate bond issuance volume
• 0.10% of EU private equity investments
Croatia’s share in EU….
0.10%
0.11%
0.25%
0.38%
0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40%
Private equity investment
Corporate bond issuance
Stock market capitalisation
IPOs & SPOs
GDP
2015-2019 average 2019

3. Source: OECD Capital Market Review of Croatia 2021.
Listed and delisted Croatian companies Turnover ratio in Croatia
• The number of listed companies has been decreasing over time with net listings being
negative in every year since 2010.
• The Croatian stock market is characterised by low levels of liquidity in the secondary
market and is dominated by trading in a few individual stocks.
• The yearly turnover ratio for stocks listed on the exchange is very modest and has been
decreasing since 2013.
Decreasing number of listed companies and
low liquidity levels in the Croatian public equity market
2.3%
2.1%
1.8%
1.3%
1.9%
1.2%
1.5%
0.0%
0.6%
1.2%
1.8%
2.4%
3.0%
2013 '14 '15 '16 '17 '18 '19
-30
-20
-10
0
10
20
30
2000 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
New listings Delisted companies
142
No. of companies
57

4. Low performance of state-owned enterprises (SOEs)
Source: OECD Capital Market Review of Croatia 2021.
• SOEs represent a significant share of the corporate sector in Croatia, accounting for 25.7%
of total assets, 10.1% of total revenues and employing 9.4% of the Croatian workforce.
• However, SOEs had a lower return on equity (ROE) compared to non-SOEs in 9 out of the
11 years between 2007 and 2017.
• With respect to sales growth, both SOEs and non-SOEs suffered significant contractions in
2009, during the global financial crisis. After experiencing a stronger recovery in 2010 and
2011, SOEs underperformed non-SOEs in almost all following years.
Return on equity Sales growth
-2%
0%
2%
4%
6%
8%
10%
'07 '09 '11 '13 '15 '17 -20%
-15%
-10%
-5%
0%
5%
10%
'09 '11 '13 '15 '17
SOE Non-SOE

5. Household participation in capital markets is modest
Source: OECD Capital Market Review of Croatia 2021.
Composition of households’ financial assets, as of end 2018
53%
50%
49%
46%
33%
28%
14%
18%
26%
14%
11%
34%
38%
38%
13%
18%
21%
33%
20%
22%
37%
7%
3%
6%
7%
8%
5%
8%
9%
3%
10%
4%
5%
7%
2%
0% 20% 40% 60% 80% 100%
Slovak Republic
Croatia
Poland
Czech Republic
EU
France
Sweden
Currency and deposits | Insurance, pensions | Equity | Investment fund shares/unit | Others
• A large share of households’ financial assets is held in bank accounts, participation in the
stock market is modest.
• Half of Croatian households’ financial assets are in the form of currency and bank
deposits, whereas only 18% is held in equity and 3% in investment funds.
• Moreover, the proportion of equity has declined by almost 10 percentage points since
2007.

6. Source: OECD Capital Market Review of Croatia 2021.
Corporate balance sheets need to be strengthened
19%
13%
0%
4%
8%
12%
16%
20%
24%
'07 '09 '11 '13 '15 '17
Croatia Czech Republic
Hungary Poland
Share of negative-equity companies
Capital structure of non-financial corporations
• Croatian companies show low levels of capitalisation compared to peer countries. Equity
represents only 40% of total assets compared to almost 60% in the Euro Area.
• Debt securities represent only 2% in Croatia, compared to 4% in the Euro Area.
• The share of companies with negative equity is higher in Croatia than in European peer
economies.
0%
20%
40%
60%
80%
100%
Euro Area Croatia Czech
Republic
Hungary Poland Slovakia
Equity Loans
Trade credit Debt securities
Other account payables

7. 










Improving conditions for stock market listing
Listing of SOEs - scaling up the market and improving governance
Unleashing the potential of institutional investors in Croatia
Long-term debt financing through markets
Mobilising private capital markets
Strengthening corporate balance sheets and improving the insolvency framework
OECD recommendations on key areas

8. Improving conditions for stock market listing

Increase the attractiveness of the regulated market by:
1
• Simplifying the market structure by reducing the number of segments on the
regulated market through merging the Regular and Official markets;
• Encouraging companies to be listed on or upgraded to the Prime Market by
providing financial incentives to companies that move to this market or become
listed through an IPO;
• Providing quantitative research of listed companies that is made available to the
market.
Improve the corporate governance framework by:
2
• Making certain provisions of the Corporate Governance Code mandatory for
companies listed on the Prime Market;
• Assigning a key role to independent board members in the approval of certain
related party transactions;
• Enhancing shareholder rights by amending regulations in order to recognise
remote participation in annual shareholders’ meetings and allow voting by way
of electronic communications.

9. Improving conditions for stock market listing

3
• Introducing a savings account system for retail investors that is exempt from
capital gains tax when the money is held for a minimum period of time;
• Simplifying the required forms and calculation of capital gains taxes.
Increase household participation in the stock market by:
4
• Modernising the Central Depository and Clearing Company by upgrading its
technical capacity to enhance operations, connectivity, efficiency and security;
• Considering, in addition to private sector financing, funds from the EU’s
Recovery and Resilience Facility which focuses on enabling the digital
transition.
Reach a full integration into global securities markets by:

10. Listing of SOEs - scaling up the market and improving governance

• Conducting secondary public offerings of SOEs with lower free-float ratios to
increase the portion of their shares available for trade to the public;
• Considering the listing of the large unlisted SOEs through IPOs on the Prime
Market;
• Consolidating SOEs that do not meet the size criteria for a Prime Market listing or
considering them for listing on the lower segment of the regulated market or on
the alternative market.
2 Use capital markets to reduce the government’s corporate holdings by:
1 Use capital markets to improve the governance of SOEs by:
• Transferring large listed SOEs from lower segments of the stock exchange to
the Prime Market, which is subject to higher corporate governance standards;
• Ensuring that SOEs listed on the Prime Market and the ones preparing for
listing comply with the Croatian Corporate Governance Code as a mandatory
standard.

11. Unleashing the potential of institutional investors in Croatia

1
• Supporting and promoting the number of listed companies on the stock
market and the corporate bond market to help institutional investors diversify
away from the current limited number of securities.
Increase the universe of investable securities for institutional investors by:
2
• Assessing the incentive structure for pension fund management companies in
order to better align their incentives with those of the fund members;
• Providing greater clarity related to the investable universe of securities and the
pricing guidelines.
Improve the design of the pension fund system by:

12. Long-term debt financing through markets

Reduce the costs of issuing a bond in the domestic market by:
1
• Providing financial assistance through government support schemes for the costs
incurred by a company when listing a bond and obtaining a credit rating;
• Considering an alternative credit rating mechanism where a domestic institution
such as the Financial Agency (FINA) could provide rating services.
Introduce a special framework for smaller company bond issuances by:
3
• Creating a dedicated market for smaller company bonds in the stock exchange;
• Tasking HAMAG-BRICO with leading the development of such a framework,
working with other public authorities and private sector actors.
2 Support the development of and liquidity in the Croatian corporate bond
market by:
• Conducting bond issuances of state-owned companies in the domestic market.

13. Mobilising private capital markets

1
• Prioritising eligible companies within the selected Croatian Smart Specialisation
Strategy (S3) clusters that show high growth potential to channel financial
support;
• Providing financial support to the eligible companies in the form of grants,
management programmes and supporting the preparations of a growth strategy;
• Emphasising the use of seed capital financing as a means to support the creation
of a pool of larger companies.
Use private capital markets to support Croatia’s efforts to diversify its
economic activity by:
2
• Considering the creation of a co-operation programme between research
institutions and the business sector;
• Providing funding to research institutions via the co-operation programme in
areas related to any of the S3 objectives;
• Creating platforms where start-ups can present their ideas to attract seed
capital.
Promote co-operation between research institutions and the business
sector by:

14. Strengthening corporate balance sheets and improving the
insolvency framework

1
• Evaluating the benefits of introducing a special tax regime such as the
allowance for corporate equity (ACE).
2
• Speeding up the process of implementing the new EU Directive on insolvency
and restructuring;
• Improving the role and functions of the insolvency office holder (IOH) by
assigning a single regulatory body to oversee the functioning of IOHs;
• Assigning this regulatory body the responsibility to apply proper sanctions,
offer a separate compliant procedure, establish a code of conduct as well as
offer training and certification opportunities to IOHs.
Improve the insolvency framework by:
Support the recapitalisation of the corporate sector by:

15. Thank you for your attention!
This report is part of the OECD Capital Market Series. More information about the
series is available at: http://www.oecd.org/corporate/capital-markets
The report was produced with the financial assistance of the European Commission
via the Directorate-General for Structural Reform Support (DG REFORM).