The non-banking financial sector is stable and moderately exposed to systemic risks, which are somewhat bigger than in 2019, the Croatian Financial Services Supervisory Agency's (Hanfa) Council assessed on Monday.

Exposure to systemic risks is bigger due to the ongoing pandemic and the fact that the Covid-19 vaccination rate is relatively low in Croatia, according to a press release issued after a Council meeting.

The Council discussed legislative and operational preparations for Croatia’s accession to the euro area, the Solvency II Directive, which regulates the operation of insurance companies in the EU, and the latest investment trends on the domestic capital market.

There are also risks related to rising inflation, notably if it is not short term, which, in the event that monetary policies change and financing costs increase when the private and public sectors are indebted, could halt further economic and financial sector growth, Hanfa said.

Exposure to risks has increased due to macroeconomic risks and global trends on financial markets. Record-high evaluation on the world’s stock markets could result in sudden and strong price corrections due to cheap money, years of relatively low returns, and accelerated digitization, which has raised fears of price bubbles in some markets, Hanfa said.