THE EFFECT OF MEASURING DERIVATIVE FINANCIAL INSTRUMENTS ON THE FINANCIAL POSITION AND PROFITABILITY - THE CASE OF BANKS IN CROATIA

Abstract

Purpose: The purpose of this paper is to determine whether the effects of measuring derivative financial instruments affect the financial position and profitability of banks operating in the Croatian banking sector.

Methodology: The survey covered all banks in Croatia that recognized derivative financial instruments in their financial statements in the period from 2017 to 2020. Descriptive statistical methods and correlation analysis were used to determine the impact of measuring derivatives on the financial position and profitability of Croatian banks.

Results: The results of the research showed that banks that recognized the effects of measuring derivative financial instruments in their financial statements make up more than 80% of total assets of the Croatian banking sector. The share of the effects of measuring derivatives in total assets of banks that have recognized these effects is less than 0.5%. The results of the research also showed a medium-strong positive correlation between derivative financial assets and total bank assets and a medium-strong negative correlation between derivative financial liabilities and total bank assets. Furthermore, the results showed a weak positive correlation between derivatives and return on assets (ROA) and a weak negative correlation between derivative financial liabilities and ROA.

Conclusion: The effects of measuring derivatives are recognized mainly in the financial statements of large banks. The results of the research showed that the effects of measuring derivative financial instruments did not have a more serious effect on the financial position and profitability of Croatian banks in the period from 2017 to 2020.