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S - 2
March 2000
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At the end of 1998, 60 banks were trading in
Croatia, of which eight were under in majority state ownership and nine in
majority foreign ownership. The total assets of all banks was 103 billion kuna,
which is a 9.8 percent increase compared to
the previous year (assets in 1997 increased by 27.5 percent). The assets of
banks under majority state amounted to 38 billion
kuna, whereas the assets of banks under majority foreign ownership amounted to 5.8 billion kuna. Four major banks comprised
53 percent of the total assets, as was the case in 1997. At the end of 1998,
there were also 36 savings banks in the Croatian banking system, including
three building societies. They accounted for only
1.5 percent of the total assets.
In 1998 and 1999, considerable changes
occurred in the Croatian banking system. Banks with stable trading, could easily be distinguished from those whose expansion
was not accompanied by an adequate business policy;
this distinction was particularly evident in the recession which hit the
Croatian economy. According to the Croatian
National Bank’s (CNB) assessment, the banks that made up as much as 80 percent
of the Croatian banking market, could be classified into the former group of
banks with satisfactory stability.
Following a period marked by, on the one hand,
the rehabilitation of four major state-owned banks (Slavonska, Rijecka, Splitska, and Privredna banka) burdened to a
great extent with the heritage from the previous system, and on the other hand, the establishment of a large number
of new banks together with a sudden expansion
of banking operations, it become evident that the rapid growth of some banks had
no sound basis. These banks thus faced
serious problems as soon as the high savings inflow of in the first post-war
years decreased and the obligations toward depositors had to be settled by the
income from investments of the raised funds.
Some banks showed irresponsible management of other entities’ money, sometimes
even criminal activity, when granting a
large part of their loans to connected persons, without adequate guarantees
and concern for recoverability; as a result, they
were very soon faced with liquidity problems.
In view of the fact that these disturbances were
not of a temporary character, and that rehabilitation of such banks at the
taxpayers’ expense was unacceptable since it would encourage further moral
hazard and malpractice, extreme measures had to be undertaken against some
financial institutions, including withdrawal of
the operating licence. At the CNB Council proposal, it was decided to initiate
bankruptcy proceedings in eight banks were reached (Vukovarska banka, Ilirija
banka, Glumina banka, Gradska banka, Komercijalna banka, Zupanjska banka, Neretvansko gospodarska banka,
Trgovacko-turisticka banka) in 1998 and 1999.
Additionally, after the appointment of a temporary administrator and analysis of
the present situation,a rehabilitation process, which is still in progress, was
initiated in Dubrovacka banka and Croatia banka. In the cases of some banks where the supervisory authorities had
encountered certain operating pro-blems, the
central bank appointed its commissioners to assist in eliminating irregularities
and stabilising operations.
In spite of being unaccustomed to the fact that
banks can go bankrupt, the Croatian public has calmly accepted this cleaning up of the banking system. Nevertheless,
there was a temporary decrease in kuna and foreign exchange savings between
March and May 1999, followed by a slight, but continuous rise in savings in the
Croatian banking system. The elimination of the problem banks from the market
favouraly influenced supply and demand on the money market, thus reducing
interest rates.
Management and supervisory boards, as
representatives of banks’ owners, are mainly responsible for the implementation of sound operation principles, efficient
competition and financial stability. Auditing companies have an important role in the assessment of their performance. The
central bank is also to a great extent responsible for the development of
effective regulation and supervision of banking operations. However, in order to
create a sound and stable banking system and to resolve crises with minimum
costs for the public, all institutions
responsible for the promotion of market principles, financial discipline and
operation legality should act in a
coordinated and consistent manner.
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