After Russia's invasion of Ukraine, this year has brought new challenges to the financial industry, including rising inflation and energy costs and the necessary transition to environmentally sustainable energy sources, the HANFA regulator's management board chair, Ante Zigman, said on Thursday.

As a result, financial markets will end this year in the red, which will also affect the balances of most financial institutions, the head of the Croatian Financial Services Supervisory Agency’s management said in Dubrovnik at a conference organised by the Association of  Pension Funds Management Companies and Pension Insurance Companies and the Zagreb Stock Exchange.

The conference brought together over 400 participants and leading Croatian and foreign professionals.

According to a press release from HANFA, Zigman said that the funds industry was expected to have negative yields in 2022, adding that, given the latest trends, a slight recovery could be expected in 2023.

“We can see that inflation is slowing gradually and interest rates might stop rising considerably, which is why Croatia should not necessarily be afraid of negative consequences and financial crises after its entry into the euro area,” Zigman said.

He said that at this point it was key to launch the energy transition and change the way of obtaining sustainable sources for heating because the present model presents a long-term risk to households and businesses.

The financial sector will play a key role during the transition because the transition would need financing and would need to be implemented through own green projects as well, Zigman said.

Under such circumstances, pension funds would change their investment portfolio. “The concentration of investment in bonds is now lower than five years ago. In addition to increasing investment in other types of assets, it will also be important to change the geographic structure of investment. Funds are expected to continue investing not just in Croatia, but in shares and bonds on foreign markets, and the adoption of the euro may give them a push in that regard,” Zigman said.