Strengthening Business Ties Between Fina and the State

Almost a quarter of a century after its establishment under the current name Financial Agency (Fina), it will gain an additional legal capacity to perform tasks for the state, as well as an expanded role in the domestic economy undergoing a green transition. However, its most significant undertaking this year – the acquisition of the Zagreb Stock Exchange – has faced a political obstacle. Namely, the announcement of the offer, which surprised participants in the domestic capital market at the beginning of August, is preceded by obtaining regulatory approvals.

Fina currently has the green light from the Croatian Financial Services Supervisory Agency (Hanfa) and the Macedonian Securities and Exchange Commission, as the Zagreb Stock Exchange holds a third of the shares in the Skopje exchange. For this actually hostile takeover, it is still waiting for approval from the Slovenian Securities Market Agency (ATVP) for acquiring a qualifying stake because the Zagreb Stock Exchange has owned the Ljubljana Stock Exchange since 2015. Approval from Ljubljana is currently the biggest unknown. At the end of last week, three parties – the Freedom Movement of Prime Minister Robert Golob, the Social Democrats, and the Left – requested the convening of an extraordinary session of the Finance Committee of the Slovenian Parliament on the topic of whether the state takeover of the Zagreb Stock Exchange threatens Slovenian national interests.

The Problem Since the Ljubljana Bank

In their explanation, the three left-liberal parties claim that Fina’s business decisions are actually decisions of the Croatian government. The oversight of a foreign state over the Ljubljana Stock Exchange would be extremely concerning, Slovenian politicians believe, reminding of the Croatian-Slovenian dispute over the Ljubljana Bank, as well as the lawsuit of the Ljubljana Bank against Fina from 1995 for compensation of two and a half million euros. Therefore, Fina, as stated in the explanation, played an important role in preventing the interests of Slovenia and the Ljubljana Bank. It is worth noting that it is the largest individual shareholder of the Zagreb Stock Exchange with a ten percent stake, which it acquired in 2019 almost by accident, from Malaysian investor Zong Xin Yeap during ownership turbulence.

Yeap, with the help of the Varaždin company Eunex-C, where the director was the owner of the brokerage house Fima Milan Horvat, began frantically buying stock shares a year earlier. He quickly approached a 20 percent stake, and for further increasing his stake, he needed Hanfa’s approval. Observers of the domestic financial market remember that the Malaysian was forced to sell half of his shares due to the Slovenian financial regulator, not the Croatian one. Namely, the Slovenian Securities Market Agency assessed that Eunex-C indirectly acquired a stake above ten percent in the Ljubljana Stock Exchange without its approval. To avoid a violation, the Malaysian investor found a solution in selling half of the shares to Fina.

Not much is known about the specific motives that prompted Fina to take this step, and the company states that they cannot comment on it until they receive all approvals, due to the provisions of the Takeover of Joint Stock Companies Act. Fina will need to prepare 15.6 million euros for the acquisition of the remaining 2.08 million shares, based on last week’s market price of the stock at 7.5 euros. Whether this will be too big a bite for the state payment operator will be clearer by the end of the year when the official offer announcement is expected.

Regardless of how the offer for the exchange will go, next year will bring Fina further strengthening of ties with the state. Some ministries have released drafts of legislative activities for next year for public discussion, including the Ministry of Finance, which intends to amend 12 laws. Among them is the Law on the Financial Agency, last amended in 2005. The Ministry of Finance explained in response to Lider’s inquiry that the new law is planned to be drafted primarily to align with the provisions of the Law on Legal Entities Owned by the Republic of Croatia, which came into force on October 1 of this year.

The State Pays the Costs

As almost a quarter of a century has passed since the first Law on Fina, the Ministry believes that its updating is necessary to ensure alignment with today’s regulatory, technological, and institutional circumstances and to reflect changes in the role and activities of the Financial Agency over the past two decades in the legislative framework.

– Everything that will not be regulated by the Law on the Financial Agency will be subject to the provisions of the Law on Legal Entities Owned by the Republic of Croatia as a general regulation. Consequently, the intention is to align the framework governing the operations of the Financial Agency with the one currently in force and to modernize and improve it to further strengthen its institutional and operational support to the state. Special emphasis will be placed on improving efficiency, organizational structure, and activities that the Financial Agency performs based on public authority, especially in the segments of providing financial-informational infrastructure, maintaining registers, and supporting state bodies in implementing public policies – states the Ministry’s response.

Additionally, given that Fina maintains the Register of Annual Financial Statements and is introducing sustainability reporting, its role will increase. It will not only ensure the acceptance of sustainability reports in the new format but will also provide support to entrepreneurs in sustainability reporting, which is the starting point for the green transition of the economy, the Ministry announced. Regarding the sustainability reports of companies, Fina’s response states that it has begun a comprehensive modernization of the system in cooperation with the Ministry of Finance, the owner of the Register of Annual Financial Statements (RGFI).

– The online submission of data to the RGFI was enabled back in 2003 as one of the first digital services for entrepreneurs, and the first phase of modernization included the development of a new application for submitting the annual financial statement, presented at the beginning of this year. Modernization will continue with the creation of a series of specialized modules that will facilitate sustainability reporting for entrepreneurs, without additional costs for them. In accordance with the agreement between the Ministry of Finance and Fina, the costs of maintaining the Register, including the future system for accepting sustainability reports, will be borne by the Ministry of Finance – say the company led by Dražen Čović since October 2016.

Market Operations?

It is already clear from this that the business connection between Fina and the state, established more than sixty years ago, is being strengthened. Fina’s roots date back to 1959 when the Service for Social Accounting (SDK) was established in what was then Yugoslavia. Its ideological founder was Edvard Kardelj, the main ideologist of workers’ self-management, a social arrangement that made socialist Yugoslavia unique on a global scale. Initially, SDK was an integral part of the National Bank of Yugoslavia, but through legal changes in 1962, it was separated from the central bank system. Thus, all financial operations of Yugoslav companies were conducted through the Service.

Within a few years, SDK grew into a bureaucratic giant with 23,000 employees and more than 400 branches across Yugoslavia. In addition to its monopoly on payment transactions, the Service was granted the legal ability to conduct oversight in financial operations in 1967. The breakup of Yugoslavia and the transition to a market economy resulted in the abolition of SDK in Croatia as part of a broader reform of oversight over the financial system. The tasks previously performed by the former Yugoslav institution were transferred in 1993 to the Payment Transactions Institute (ZAP) and the State Audit Office. Fina has existed under its current name since 2002. This institution was transformed into a state-owned agency with a range of public powers and commercial services. At the end of last year, it employed 2,432 people, mostly women, in a network of 170 branches. Despite being state-owned, its website states that it operates solely according to market principles. However, much of the criticism directed at its operations in recent years calls this thesis into question. The common denominator of these criticisms is that today’s Fina is actually a successor of the socialist SDK adapted to 21st-century technology, which can attribute its ‘market operations’ to the fact that a large number of the services it provides are legally mandated. These are services assigned to it based on the Law on the Financial Agency, the Law on Accounting, and the Law on the Enforcement of Claims on Monetary Assets. However, even its market services were controversial until recently.

For years, accountants have warned that Fina is an unfair competitor due to its privileged access to clients who open their companies with it, as well as free access to certificates and ‘in-house’ services that other accountants had to pay for. Their complaints were silenced three years ago when Fina sold its Accounting Services with 650 clients.

Excellent Business in 2024

Today, from commercial services, it provides services on behalf of and for commercial banking, cash distribution and processing on behalf of the Croatian National Bank through its subsidiary Fina Cash Services, manages interbank settlement systems (NKS), and the national system for issuing public keys – the Register of Digital Certificates (RDC) – and operationally manages other public and commercial registers. The significance of the tasks arising from legal obligations for Fina is confirmed by the financial reports available on its website. Of the total revenue of 138.9 million euros in 2024, 60 percent was generated from public services. When the most important segments of business are analyzed, it is evident that there is not much ‘market’ and business outside of those for the state.

Last year, the largest revenue growth of 6.2 million euros was recorded within the public services segment, which brought in 36.8 million euros. This is primarily the result of a 13 percent increase in payment bases for enforcement operations. Revenues from the service fee for e-Auction and the Register of Pledges, as well as the establishment of the Register of Producers with extended responsibility, further contributed to the revenue growth rate of this segment by 20 percent.

The state services segment, valued at 29 million euros, recorded a 22 percent increase in revenue, primarily due to higher revenues from support services for the state treasury system compared to the previous year and the establishment of the e-Amendments information system. The increase in revenue in this segment was also influenced by new contract terms related to the services of the Centralized Payroll Calculation for the public sector, services for the Central Register of Insured Persons, support services for monitoring the consumption of special fuel (blue diesel), and the collection of public dues via payment cards through EFTPOS devices.

Within the digital solutions segment, a convincing increase of 34 percent was recorded, reaching 19 million euros. This is the result of upgrades and maintenance of the EU Funds digital platform and the maintenance of the electronic NIAS system. In the largest individual segment of services for the financial industry, namely payment transactions, with revenue of 42 million euros, the past year brought a four percent increase. According to the report, the growth can be attributed to revenues from the establishment and upgrade of the Ministry of Finance’s digital platform for securities e-Treasury, as well as higher revenues from citizen payments.

Fiscalization 2.0 New Opportunity

All of this resulted in last year’s operational profit (EBITDA) of 21.6 million euros and a staggering 15-fold increase in net profit to 7.6 million euros. The profit would have been even higher if a new payroll system based on the Collective Agreement had not been introduced last year, which increased personnel costs of 64 million euros by 14 percent. More recent data on operations is not yet available as the business results for the first nine months of this year have not yet been presented to the Supervisory Board.

– It can be preliminarily stated that Fina is recording a positive financial result in the current year with a stable contribution from all key business segments, from public services and digital solutions to services for the financial industry and state bodies. We expect these positive trends to continue in the upcoming period – the company stated.

According to the business plan for this year, Fina has set a revenue target of 144.3 million euros with a nine percent increase in expenses, amounting to 141.2 million euros.

The digitalization of payment transactions opens new business opportunities. This particularly applies to fiscalization 2.0, i.e., the mandatory exchange of e-invoices among companies. Here, Fina will be a market participant as one of the information intermediaries, i.e., providers of services for receiving and sending electronic invoices, which may again repeat the story of unfair competition, as was recently the case in the accounting services market.

Ahead of the new fiscalization law coming into effect, Fina expects further growth in the number of users of its information intermediary services.

– Fina already has a strong user base and a recognizable tradition of providing secure, reliable, and technologically advanced digital services to the economy and the public sector. We believe that these values will be the reason why many entrepreneurs will choose Fina as a reliable partner in the exchange of electronic invoices – the company stated.

In any case, as long as there is a state, Fina’s business has a secure perspective.