The Croatian National Bank allocates its profit in accordance with the Act on the Croatian National Bank. The allocation of profit generated by the CNB is regulated by Article 57 of the Act on the Croatian National Bank and is indirectly affected by the implementation of accounting rules in accordance to which the Croatian National Bank prepares its financial statements.
Up to date, including in 2020, these rules were the International Financial Reporting Standards, as laid down in Article 60 of the Act on the Croatian National Bank (OG 75/2008 and 54/2013). The International Financial Reporting Standards comprise International Accounting Standards (IAS), their amendments and associated interpretations and International Financial Reporting Standards (IFRS), their amendments and associated interpretations, as laid down by the European Commission and published in the Official Journal of the European Union.
As from 2021, the CNB will prepare its financial statements in accordance with the Guideline (EU) 2016/2249 of the European Central Bank, as envisaged by Articles 16 and 37 of the Act on Amendments to the Act on the Croatian National Bank (NN 47/2020).
In accordance with the financial reporting rules applied thus far, profit also included unrealised gains from exchange rate differences and the increase in the value of the CNB's financial assets. According to the financial reporting rules applied thus far, profit was calculated as the difference between realised and unrealised income and expenditures. The main elements in profit calculation were net interest income, net income from fees and commissions, income from dividends and investments – equity method, realised net income from sale or purchase of financial assets, as well as net income from unrealised exchange rate differences, net income from unrealised changes in market prices of financial assets and operating costs. In other words, financial results also included those changes in the value of the CNB's financial assets that did not arise from realised transactions but were a result of the situation in the capital markets, which affected the book value of the CNB's financial assets as at the day the financial reports were prepared, and were a result of the situation in the foreign exchange market, which affected the kuna equivalent of its foreign exchange assets. Given that such unrealised changes in the value of balance sheet positions are temporary and occur exclusively due to accounting conventions, they were allocated to general reserves, where they could be used to cover unrealised loss when market circumstances change. The remaining profit was allocated entirely in accordance with the Act on the Croatian National Bank, in most cases entirely to the state budget because unrealised gains allocated to general reserves mostly exceeded 20% of realised gains. On the other side, if the entire profit was generated exclusively from unrealised exchange rate differences and from the increase in the value of financial assets, such profit was entirely allocated to general reserves.
According to the ECB Guideline, unrealised gains from exchange rate differences and increase in the value of financial assets will not be included in the CNB's profit. The Act on Amendments to the Act on the Croatian National Bank entered into force in 2021 and financial statements will be prepared in accordance with the ECB Guideline. Gains from unrealised exchange rate differences and gains from unrealised changes in market prices of CNB's financial assets will not be recognised in the profit and loss account but in the balance sheet. In accordance with Article 15 of the amended Act on the Croatian National Bank, one fifth will be allocated to general reserves and four fifths will constitute a revenue to the state budget. By way of derogation, if, due to previously generated losses, the amount of general reserves falls below the lower bound of general reserves determined by the CNB Council in accordance with the Act, the required amount of profit necessary to reach the lower bound of general reserves will first be allocated to general reserves. The remaining profit shall be allocated in accordance with the general allocation rule, that is, in such a manner that 20% of the profit is allocated to general reserves and 80% of the profit to the state budget.