Investment risk- acceptable level for DGF

February 26th 2015, Warsaw, Poland

Content

DIF Chronology

Legal framework related to investments of DIF

Investment practice in given framework

Challenges

Croatian Deposit Insurance Fund DIF established in year 2000; necessary foundation for effective DGS

National Deposit Insurance Act form 2004 defines both DI ’’funding’’ and ’’investment policy’’

Investment policy in form of the Article of DIA

Article stipulate rather conservative, even restrictive ‘’investment policy’’

a formal description of the cautious (timid) investment

philosophy that could be utilized for a given fund

Croatian DIA Art.17 par.(5) and par.(7) = Investment policy

(5) Funds could be invested in:1. Short term securities issued by or guaranteed by Republic of Croatia2. Short term securities issued by or guaranteed by EU member State

or by other OECD member countries3. Long term debt securities issued by or guaranteed by Republic of

Croatia4. Long term debt securities issued by or guaranteed by EU member

State or by other OECD member countries

(7) Other securities with special decision and approval of Minister of finance

Objectives and goals of such Investment policy Risk –free investment – protection of Deposit Insurance Fund

Treasury securities offer a safe place to put money Highest level of liquidity and availability of funds @ any time

Transparency and reliability

Limit Fund-management from Fund-investor’s behavior

Discourage any risk taking and focus on safety and availabilitySave vs. invest

Croatian investment practice• No ‘’real investment’’ or risk taking

• 92% of total DIF is invested in treasury bills (89%) and treasury notes (3%) issued by Ministry of Finance

• End of 2014 ≈ 500 mil. €

• Low IR < 2% (≈ 1,5% over past 6-9 months)

• Major ‘’complains’’ form CI cheap financing for the State

Challenges for developing ‘’proper’’ Investment Policy

Although Treasury securities (T-bills and T-bonds) are considered by most investors to be the safest bet

around each of these securities is backed by ‘’the full faith and credit’’ of the government and

therefore offer a safe place to put your money (especially in uncertain economy)

Such investments tend to pay relatively modest/low rates of interest (lower than other comparable bonds)

Q1: Missed opportunities?

On the other hand Corporate bonds may put our principal at some riskQ2: What is acceptable level of risk for DGF compared to potentially higher interest?

Q3: Alternative financing for other DGSs should it be tackled/regulated by purpose (utilization) of DGF or by investment policy of DGF?

www.dab.hr