1. Investment risk- acceptable level for DGF February 26 th 2015, Warsaw, Poland

2. Content  DIF Chronology  Legal framework related to investments of DIF  Investment practice in given framework  Challenges

3. 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

4. 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 Croatia 2.Short term securities issued by or guaranteed by EU member State or by other OECD member countries 3.Long term debt securities issued by or guaranteed by Republic of Croatia 4.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

5. 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 availability Save vs. invest

6. 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

7. 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 risk Q2: 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?

8. www.dab.hr