1. International Environment

2. General Features of the Croatian Economy in 1997

3. Monetary and Credit Aggregates

4. International Monetary Institutions

5. Banking System of the Republic of Croatia

6. Activities of the Council of the Croatian National Bank

1. International Environment

In 1997, economic growth in the European Union finally accelerated. The growth rate increased from 1.6 percent in 1996 to 2.7 percent in 1997. This growth was mainly the result of the growth of exports in these countries. Towards the end of the year, domestic final demand began to grow rapidly as a result of increased business investment. This investment, in turn, was the result of the increased competitiveness of European economies stimulated by the movement of the US dollar exchange rate. This trend is of course favorable for Croatia, since the EU is Croatia’s main trade partner, accounting for 60 percent of Croatia’s foreign trade.

The United States recorded very high growth rate (3.8 percent) in 1997, continuing the longest post-war expansion of the American economy. This expansion continues to unfold in conditions of very low inflation and moderate wage increases. Because of this, the Federal Reserve has not felt a great need to intervene, except for a quarter-point increase of interest rates in March. The Fed was greatly aided by the consistent implementation of restrictive fiscal policy, which resulted in a practically balanced budget in 1997. The relatively large current account deficit of the largest economy in the world, however, continues to engage a large part of the savings of the “rest of the world.”

On the other hand, Japan experienced a rise in economic growth of only 0.5 percent in 1997. This rise resulted from the inability of economic policy to stimulate domestic demand, as well as weaknesses in the corporate sector and financial system. The Asian crisis came on top of these internal weaknesses, further harming the already shaky economic outlook. Japan’s role as the key economy in Asia remains unquestioned, so that hopes for recovery in the whole region to a great extent depend on whether Japan manages to return to growth in next period. And this will have an important effect on the world economy.

The transition countries experienced slower growth in 1997 again. Their growth rates are very disparate. These large differences in growth rates are the result of strong shocks, such as political crises and financial crises. Such shocks can have major effect on the growth rates of individual countries.

However, it is projected that the external position of Central and East European countries will further worsen in 1997. The growth in the current account deficit is the most important cause for concern in a number of Central and East European countries. Probably the main reason for this development is the fact that rapidly-growing domestic demand, in combination with constant appreciation of the domestic currency, is stimulating imports and holding back exports in a majority of transition countries.

The Asian crisis gave 1997 unique features. The crisis will have long-term consequences for all developing countries, and for the transition countries of Central and Eastern Europe.

The past year was a crucial year for EMU candidates. It appears that the majority of the candidate countries have succeeded in meeting the Maastricht criteria. The largest problems, as expected, were in fiscal sphere.

Although these problems created some uncertainty about whether the monetary union would get off to a smooth start, there was virtually no question that the project would ultimately begin on time. The reactions of the market confirm this. Monetary union is certainly an important event not only for Europe, but also for the whole business world. It will be especially important for the transition countries trying to join the EU, which entails accepting the obligation to join the EMU and to meet the Maastricht criteria.

The entry process to the EU also took clearer form this year. The EU will begin to negotiate with five transition countries in the first round (Estonia, Poland, the Czech Republic, Hungary and Slovenia) as well as Cyprus. The other five transition countries with Association Agreements are left to wait while they improve their political and/or economic situation. Parallel with these negotiations with the transition countries, the EU has the enormous task of reforming the structural and CAP funds, as well as resolving the question of political representation (the weighting of votes in an expanded EU). Until these questions are settled, expansion will be impossible.

The two fundamental features of the Croatian economy in 1997 were: the continuation of rapid growth of economic activity in conditions of low inflation, and the growth of the current account deficit.

The gross domestic product grew by 6.5 percent in 1997. Last year, therefore, was the fourth consecutive year of rapid economic growth after a period of deep recession in the early 1990’s caused by war and transition. Last year’s growth was mainly the result of strongly increased activity in tourism and construction, along with the continuation of the growth of trade. In addition to this, industry, the most important sector of the economy, finally achieved rapid growth in 1997 (6.8 percent), mainly due to exceptionally rapid growth in the energy sector of 24.2 percent.

The industrial branches with the largest exports in 1997 were production of clothes, processing and dying of fur, chemical industry, food and drinks industry, and the oil industry The largest shares in imports were held by the production of machines and equipment, the production of motor vehicles, the chemical industry and the food and drink industry.

Tourism also continued its positive trend. About 30 million tourist night-stays were recorded, of which 81.5 percent referred to foreign guests. The number of night-stays was 41 percent higher than the year before. Guests from Germany, the Czech Republic, Slovenia, Italy and Austria accounted for most of the night stays.

The low inflation rate and stability of the exchange rate of the kuna in 1997 confirmed the continuity of the policy of the Croatian National Bank. The rate of inflation, measured by retail prices, amounted to 3.8 percent on a December-to-December basis, and 3.6 percent measured by the yearly average. The cost of living index rose by 4.9 percent on a December-to-December basis, and 4.1 percent measured by the yearly average, and producers’ prices rose by 1.6 percent and 2.3 percent respectively.

The stability of the exchange rate and the stability of retail prices are mutually dependent and favorable for a small open economy like Croatia. The average exchange rate of the kuna versus the German mark in 1997 was 3.56 HRK/DEM. This implies a high degree of stability; the kuna appreciated only 1.6 percent over the previous year’s value. At the same time, the average annual exchange rate against the US dollar was 6.16 HRK/USD, a depreciation of 13.3 percent against the previous year. Such changes in the kuna-dollar exchange rate were the consequence of the growth of the value of the dollar against the German mark and other currencies on world currency markets.

The exchange rate of the US dollar and other exchange rates against the German mark had the greatest influence on the real effective exchange rate in 1997. By the end of the year, the index of the real effective exchange rate deflated by retail prices depreciated by 1.4 percent relative to the end of 1996, while the index of the real effective exchange rate deflated by producers’ prices depreciated by 2.7 percent.

The fundamental characteristics of changes in interest rates in 1997 can be summarized in several points. First, the long-term downward trend of interest rates on the Zagreb Money Market. Second, the fall of lending rates and the simultaneous stagnation of deposit rates, which resulted in a decrease in the interest “spread.” Third, the convergence of interest rates on short-term CNB bills and Ministry of Finance treasury bills.

Average interest rates on the money market remained near 11 percent in the first half of the year. Rates began to fall in the second half of the year, and reached the lowest average monthly rate of 8.5 percent. The relative stability of interest rates on the money market was an expression of the bank rehabilitation process, which unquestionably improved the liquidity of the whole banking system.

Credit expansion along with a simultaneous decrease in lending rates was recorded in 1997. Interest rates on non-indexed kuna credits amounted to 14 percent, while interest rates on kuna credits that are indexed to foreign currency amounted to 14.4 percent. Both rates significantly decreased in comparison to 1996.

Deposit interest rates were stable in 1997. The average interest rate on foreign exchange deposits ranged near 4.5 percent during the whole year. Average interest rates on kuna deposits were at a somewhat lower level of 4.2 percent.

In 1997, the downward trend in the spread that began in 1996 continued. At the beginning of the year, the difference between lending and deposit rates was 13.5 percentage points. The spread fell to less than 10 percent points at the end of the year.

The current account deficit was 2,282.9 million USD or 11.8 percent of GDP in 1997. The current account deficit was the continuation of a trend beginning in 1995, resulting from increased domestic demand stimulated by accelerating economic growth and slower growth of domestic supply. The current account deficit in 1997 grew 1,402.1 million USD in absolute terms or 159.2 percent.

This increase was mainly influenced by strong growth in imports, while decreases in exports in dollar terms and decreases in current transfers had smaller influence. In 1997, three measures of economic policy additionally influenced the increase in merchandise deficit. First, the allowance of customs and tax exemption for imports of automobiles, machines and equipment to a large share of population (those who had participated in the war). Second, the introduction of VAT, which was planned for 1998, caused inventory build up in the last two months of 1997. Third, the Government’s decision to remove tariff relief for Croatian citizens who have lived at least two years abroad induced a large part of the population to use these reliefs before the end of the year.

In 1997, the burden of financing the deficit changed from decrease in the foreign exchange assets of other sectors (increased foreign exchange savings at domestic banks) to borrowing abroad. A significant impact on the balance of payments, which is compiled in dollars, had changes in the value of the dollar relative to European currencies in which the majority of Croatia’s international transactions are made. In addition, it should be noted that a methodological revision of the compilation of the balance of payments was undertaken in 1997. The reason for this change were substantial net errors and omissions inherited in the old methodology which the new methodology was able to decrease.

Total merchandise imports (including “shopping tourism”) amounted to 9,448.9 million USD in 1997 or 15.3 percent more than in the previous year. In 1997, the openness of the Croatian economy grew, and the ratio of the sum of imports and exports of goods and services to GDP amounted to 102.4 percent as compared to 90.9 percent in 1996.

Net service income was the largest positive element in the current account of the Republic of Croatia. It amounted to 2,022.1 million USD in 1997, and increased by 14.6 percent over the previous year. This growth was the result of a successful tourist season in which net tourist income of 2,007.7 million USD was realized, with an annual growth rate of 33.9 percent or 508.5 million USD in absolute terms. Net income from transport was 266.1 million USD, which was a fall of 15.9 percent, caused mainly by a fall in income from transport. The largest relative change was seen in the deficit on other services, which increased by 387.8 percent relative to the previous year and amounted to 251.7 million USD. The appreciation of the dollar significantly decreased income from services which are mainly in German marks, Italian lira or Austrian shillings.

The net deficit on the income account increased in 1997, reaching 84.3 million USD, an annual increase of 293.9 percent. The increase in foreign indebtedness and the growth of interest on foreign debt were behind this increase. On the other side was significant income generated by Croatian banks’ deposits in foreign banks. Another positive element in the income account in net workers earnings.

The current transfers account also shows a fall in income, which amounted to 851.8 million USD or 17.1 percent less than in the previous year. The decrease in net transfers was mainly the result of the decrease in international aid to the government occasioned by entry into a period of peace in the last several years.

Net direct investments were 196.1 million USD, which was an annual decrease of 61.5 percent. Foreign direct investment was 346.3 million USD or 34.6 percent less than in the previous year. A significant increase occurred in investment by Croatian economic entities abroad. Such investment reached 150.3 million USD, an annual increase of 636.8 percent.

Portfolio investment should be added to direct investment, since portfolio investment includes investments that account for less than 10 percent of an enterprise’s capital and foreign purchases of the Republic of Croatia securities. In 1997, portfolio investment grew several times over, reaching 174.2 million USD. Total foreign investment (520.5 million USD) decreased by only 6.5 percent relative to 1996, but there was a significant change in the structure of investment, with a much greater share for portfolio investment.

At the beginning of 1997, registered unemployment in the Republic of Croatia was 269,263, while at the end of the year 287,120 unemployed were registered with the Croatian Employment Bureau. The increase in registered unemployment amounted to 17,857 or 6.6 percent. The unemployment rate was 17.6 percent at the end of the year.

According to the findings of the Labor Force Survey (ARS97) carried out in June 1997, there were 175 thousand unemployed persons according to the methodology of the International Labor Organization. This is 93 thousand less than the number registered at the Employment Bureau that month. The unemployment rate calculated on the basis of this Survey amounted to 9.9 percent.

The employment fell by 87.887 or 6.1 percent in 1997. Employment at year-end was 1,341,736. According to the methodology of the Labor Force Survey, the same variable was 1,593 thousand in June 1997. This is 237 thousand more than shown by the CBS. The reason for these differences is the incompleteness of monthly data. Data on formal sector are considered to be well processed, while data on growth of self-employment and informal sector are not included in statistical calculations.

The average real net wage in 1997 was 2,394 kuna, and was 12.4 percent higher than the 1996 average. Real gross wages grew somewhat slower due to decreases in wage taxes at the end of 1996. In particular, the standard tax deduction for income taxes rose from 700 to 800 kuna, and tax rates in the lowest brackets were reduced from 25 to 20 percent. As a result, real gross wages were 8.3 percent higher in 1997 than in 1996 on average.

Less income than expenditures was the characteristic of central government, consolidated central government and extra-budgetary funds except for the Children’s Fund. The account of consolidated general government in 1997 has not yet been completed.

Fiscal policy was determined by the budget passed for the year. No rebalance was necessary. The central government budgetary outturn showed a deficit of 1.16 billion kuna or 1.02 percent of GDP. The deficit was only 41.0 percent of the planned deficit. The deficit was entirely financed by foreign sources, and government repaid some of its outstanding debts to domestic sector.

The nominal growth of revenues was 7.9 percent. The share of revenues in gross domestic product decreased relative to the previous year. Tax revenues grew by 9.8 percent annually.

Expenditures rose by 11.1 percent in nominal terms. Their share in gross domestic product was the same as last year. Current budgetary expenditure were the largest part, 84.5 percent.

The extra-budgetary funds present a special problem of the financial sector. Not only is their share in GDP growing, but in addition, their deficit is growing too. While the government budget during 1997 had a surplus, the increased deficit of the extra-budgetary funds will be the generator of an increased deficit of consolidated government, which is only a continuation of a multiple year trend. Preparations for the reform the pension system, as well as reform of the health system, are extremely important for this reason. A pension system based on three pillars should be put into place in 1999.

The deficit of consolidated central government was 1.3 percent of gross domestic product, and the deficit of extra-budgetary funds was 5.1 percent.

Three dominant trends were noted in 1997. First, slower growth of total liquid assets, above all because of slower growth of foreign exchange deposits. Second, a significant decrease in net claims on central government along with very rapid increase in bank placements to other domestic sectors. Third, in the second half of the year, decreases in net foreign assets, both because of decreased foreign assets and because of increased foreign borrowing.

Total liquid assets (M4) grew by 37.6 percent in 1997, in contrast to 1996, when it grew by 49.1 percent. The movement of this aggregate is determined by the flow of foreign exchange deposits.

The money supply (M1) grew by 20.9 percent, while its growth rate amounted to 37.9 percent in 1996. The slowdown in the growth of currency in circulation played an important part in this.

The annual growth of placements was 44.4 percent or 14.9 billion kuna and was twice as rapid as growth in 1996.

The receipt of an investment grade credit rating, which enabled Croatia to gain access to international capital markets on favorable terms, contributed to the growth in banks’ foreign borrowing.

Base money (M0) grew by 1.6 billion kuna or 18 percent in 1997. It was created by a net monetary effect of 1.9 billion kuna, while the decrease of the reserve requirements and the sale of CNB bills and Ministry of Finance treasury bills produced a net sterilization of 0.3 billion kuna.

The average amount of funds in banks’ giro accounts was 503.7 million kuna in 1997, which amounts to 8.6 million kuna per bank. The average amount of total money assets (giro account plus vault cash) in the banking system was 660.0 million kuna, and the average per bank was 11.3 million kuna. The average amount of total liquid assets (total money assets plus central bank and treasury bills) was 1,644.1 million kuna, and the average per bank was 28.1 million kuna. These results were realized using an average of 245.2 million kuna from the money market, from the central bank, directly between banks or with the development bank - the Croatian Bank for Reconstruction and Development.

The main characteristic of relations between the Croatian National Bank and the central government in 1997 was the repayment of two long-term credits. During the same year, short-term credits were granted to the central government, and were all completely repaid by the second half of August.

The central bank’s activities relating to the liquidity of the banking system and the stability of the domestic currency were carried out via familiar, but modernized instruments of monetary policy.

In 1997, more precisely beginning in October, commercial banks and savings banks were able to use daily bridging loans to help overcome liquidity problems. The essence of the new daily credit lies in the fact that it must be collateralized with CNB bills up to 100 percent of the nominal value of bills used for this purpose. Daily credits were used by three to sixteen banks, and the average monthly amount of daily credits ranged from 7.4 million to 25.8 million kuna.

Since the liquidity of the banking system significantly improved, not a single interventive credit was granted during 1997.

The monthly use of lombard credits ranged from 29.5 million kuna to 134.9 million kuna, while the average use of lombard credits during the year was 57.7 million kuna.

In 1997, the Croatian National Bank, in keeping with movements in the liquidity of the banking system, held eleven repo auctions. The average monthly amount auctioned was 144.5 million kuna. This is yet another indication that repo arrangements are becoming more important, both in the instrumentation of the central bank and with commercial banks.

The stock of bills outstanding varied between 800 and 1,000 million kuna. Significant changes occurred in the structure of bills held. In comparison to the end of 1996, the share of bills with 182 days maturity increased. At the end of 1997, it amounted to 17 percent and was still growing.

At the beginning of 1997, the reserve requirement was 35.85 percent. The Croatian National Bank decreased the reserve requirement in threes steps during the year. The last decrease came in June. Since then, the rate has been 31.85 percent.

The Croatian National Bank attempted to decrease the general level of interest rates via various instruments in 1997. In the same vein, it decreased its own interest rates. First, it decreased the interest rate on lombard credits from 11 percent to 9.5 percent, and the discount rate from 6.5 percent to 5.9 percent. Later, it decreased the remuneration rate on required reserve from 5.5 percent to 4.5 percent. Also, interest rates at repo auctions, which had been at 28.9 percent in 1996, fell to 8.4 percent on average during the year.

Interventions on the Croatian foreign exchange market were the most important instrument for maintaining a stable exchange rate. In the course of 1997, the Croatian National Bank organized 14 auctions at which it sold foreign exchange to remove kuna from circulation and bought foreign exchange to provide kuna liquidity to banks. During almost all of 1997, there was a significantly greater supply of foreign exchange and increased demand for kuna. As a result of this, there was pressure towards appreciation. The Croatian National Bank sold foreign exchange in the equivalent amount of 78,7 million USD, which, along with the purchase of foreign exchange of 377.1 million USD resulted in a positive balance, that is, net purchase of foreign exchange of 298.4 million USD. In this way, the CNB created 1.9 billion kuna net of base money through foreign exchange market transactions.

The foreign exchange reserves managed by the Croatian National Bank were 2,539 million USD as of December 31, 1997. Valued at current exchange rates, they grew by 225 million USD relative to December 31, 1996.

The co-operation between the Croatian National Bank and international monetary institutions was successful and continued during 1996. Furthermore, it should also be noted that the co-operation with the International Monetary Fund was very intensive. In support of the program of specific reforms which the Republic of Croatia would perform over a three-year period, the Managing Board of the International Monetary Fund approved an Extended Fund Facility to the Republic of Croatia on March 12, 1997 in the amount of 353.16 million SDR (135% of quota). The repayment period was 10 years from the time of first use, in half year installments. By accepting the Extended Fund facility, Croatia agreed to certain conditions, so-called implementation criteria. The funds granted within the framework of the Extended Fund Facility would be disbursed periodically during the three-year period based on the fulfillment qualitative and quantitative conditions (13 tranches were envisioned; the first tranche of 28.78 million SDR was disbursed on March 17, 1997).

Although the Republic of Croatia fulfilled all the economic implementation criteria contained in the arrangement, the IMF, bowing to political pressure regarding criticism of implementation of the Dayton agreement, postponed the disbursal of the second tranche (28.78 million SDR) in July 1997. The Managing Board approved the disbursal of the remaining tranches for 1997 on October 10, 1997. The tranches amounted to 86.34 million SDR. However, since the economic situation had shown that there was no need for further strengthening external liquidity, the Republic of Croatia decided not to withdraw any further tranches, that is to not use the funds granted in this arrangement. Instead, discussions on new forms of co-operation with the IMF were begun (Staff Monitored Program).

In addition, there was especially successful co-operation between Croatia and the Bank for International Settlements (BIS) in 1997. Croatia became a full-fledged member of the Bank for International Settlements at the regular annual shareholders meeting held in Basle of June 19, 1997. Membership was not awarded on the basis of succession to the membership of the former National Bank of Yugoslavia, but on the basis of an exceptional increase in capital. The achievement of membership on the basis of the “extraordinary increase of capital” method will not have any influence on the continuation of negotiations about the succession of monetary gold, foreign exchange and shares of the former National Bank of Yugoslavia, which amount to approximately 600 million USD. This is stated in points 4, 5 and 7 of the Decision of the Board of Directors of the BIS of May 12, 1997 and in point III of the Decision on Acceptance of Membership of the Croatian National Bank in the Bank for International Settlements in Basle.

An agreement on an Enterprise and Financial Sector Adjustment Loan (EFSAL) between the Republic Of Croatia and the International Bank for Reconstruction and Development (the World Bank) was signed on June 4, 1997. With this agreement, the World Bank granted 160 million DEM as support for the already-underway process of reform of the financial and enterprise sectors. The repayment period is 10 years, and the withdrawal of funds, as well as the repayment of the loan is made through a separate account open at the Croatian National Bank. The first tranche of 80 million DEM was withdrawn in November 1997, and the withdrawal of the second tranche is conditional on the fulfillment of certain conditions related to the privatization of public enterprises and restructuring of banks, in accordance with the loan agreement.

The most important events in 1997 that influenced financial relations with the world, and with foreign banks as well, in addition to achieving membership in the BIS, were Croatia’s receipt of a credit rating, preparations for the introduction of the Euro, important large mergers and takeovers in world banking, and the disturbance of the financial markets caused by the crisis in Southeast Asia.

At the early beginning of 1997, Croatia received an investment grade credit rating by three internationally-recognized agencies (Standard & Poors, Moody’s and IBCA). The analyses prepared by the credit-rating agencies provided answers to a large number of questions that had been asked in the past. In addition, the number of interested foreign creditors and investors wanting further information greatly increased.

The banking system of the Republic of Croatia included 60 banks and one branch of a foreign bank in 1997. During the year, one bank underwent assessment of the feasibility and economic justification of rehabilitation. This assessment ended in the beginning of bankruptcy procedures.

According to the legal status, 56 banks are joint-stock companies and 4 are limited liability companies. At the end of 1997, 87 percent of banks are in complete private or majority private ownership. Banks in complete or majority private ownership accounted for 64 percent of total assets and 61 percent of the capital of the banking system. The concentration of large banks in the banking system remains high, with four banks dominating. All banks are universal banks. Banks meet requirements related to undertaking of payments and credit business abroad, while 53 banks and one branch of a foreign bank are authorized to perform these operations. Nine banks in majority state ownership hold 29.8 percent of the capital of the banking system.

In addition to commercial banks, the banking system of the Republic of Croatia includes 33 savings banks. Of these, 22 are limited liabilities companies, and 11 are joint-stock companies.

Total funding sources amounted to 94.1 billion kuna at the end of 1997, experiencing the annual growth rate in the amount of 27.5 percent.

The founding capital of banks was 9.2 billion kuna at the end of 1997. It grew by 21.1 percent over the previous year. The share of founding capital in total liabilities amounted to 9.7 percent. Supplementary capital amounted to 1 billion kuna and accounted for 1.1 percent of total liabilities. The annual growth rate of supplementary capital was 47.5 percent.

Provisions for identified potential losses amounted to 4.4 billion kuna (4.7 percent of total liabilities).

Bank profits account for 1.2 percent of total liabilities. Liable capital of the banking system was 11.7 billion kuna on December 31, 1997, which was 24.5 percent more than at the end of 1996.

Total bank assets amounted to 94.1 billion kuna at the end of 1997. Money and deposits held with the central bank were 8.3 percent of this, short-term claims 38.5 percent, long-term claims 44.3 percent, while long-term investment in shares and participations, purchased claims and rights to claims, and tangible and intangible assets accounted for 8.9 percent of bank assets. The relationship of money assets and deposits at the central bank was 1:1.

The capital adequacy ratio was 16.6 percent at the end of 1997.

The share of good assets in total risk assets was 88.9 percent (risk group A), while the other 11.1 percent referred to bad assets (risk groups B-E). Off-balance sheet items showed the same ratio. Provisions for identified potential losses for risk assets and off-balance sheet items amounted to 5.5 billion kuna for the whole banking system.

Twenty banks granted large credits in 1997 in the amount of 1.4 billion kuna, while fifteen banks had maximum credits in a total amount of 4.7 billion kuna. The total amount of credits given to related parties amounted 0.3 billion kuna. Total claims and obligations assumed for one customer exceeding 30 percent of liable capital were 7.4 billion kuna and accounted for 63.52 percent of liable capital on average.

After tax profit was 1.2 billion kuna for the whole banking system in 1997. Total income amounted to 9.6 billion kuna, and interest and similar income was the largest item within this figure (64.9 percent). Total costs amounted to 8.4 billion kuna. Interest costs had the largest share in total costs (38.2 percent).

The number of savings banks grew from 22 to 33 in 1997. The total balance sum of savings banks was 1.1 billion kuna.

The Area of Control and Supervision of the Croatian National Bank supervises the banks and savings banks from the point of view of stability and soundness of the banking system. The Area of Control and Supervision, using on-site and off-site (analysis of banks’ financial reports) methods, supervises and monitors the banks and savings banks. It also monitors banks and savings banks implementation of monetary and foreign exchange policy measures.

On-site examinations were conducted in 14 banks and 17 savings banks during 1997. In three banks and three savings banks the supervision process was not finished by the end of the year.

During 1997, one bank went through an assessment of the feasibility and economic justification of rehabilitation procedures. Documentation on the following applications was processed: i) granting licenses (1 bank and 7 savings banks), ii) prior consent to shareholders gaining more than 10 percent of the voting shares of a bank (7 bank shareholders and 2 savings banks shareholders), iii) consent to temporary exceeding the limit on investment in tangible and intangible assets (4 banks) and iv) consent to gaining ownership in other companies above 10 percent of liable capital (2 banks).

6. Activities of the Council of the Croatian National Bank

During 1997, 18 meetings of the Council were held at which all important decisions were made, including those published in the “Official Gazette” and those of an internal nature. These mainly included decisions on current monetary policy, as well as decisions regarding the prudential supervision of banks. On October 1, 1997, the 100th (jubilee) meeting of the Council of the Croatian National Bank was held. On this occasion, Governor Dr. Marko Škreb addressed the council and recounted the history of the Council’s five and a half years of work.

The Council also stated that the introduction of the kuna in Croatian Podunavlje was the most important task to be accomplished in 1997. The introduction of the kuna was completed in the envisioned term, as well as in accordance with the economic and political nature and the importance of the event. In addition, the Council also made decision in the filed of numismatics, and took a Decision on Creation of a Plan for the Emission of Commemorative Coins and Numismatic Collections in 1998.

The 105the working/commemorative meeting of the Council of the Croatian National Bank was held on December 22, 1997. The session noted that the Parliament’s’ passage of the Constitutional Law changing the name National Bank of Croatia to “Croatian National Bank”.