At the aforementioned session held by the Council of the Croatian National Bank, the following decisions, among other issues, were discussed and reached:

1. Decision on the Reversal of the Decision on Operating Licence for Krapinsko- zagorska banka d.d. Krapina;
2. Decision on the Reversal of the Decision on Operating Licence for the branch of the foreign bank Societe Generale;
3. Decision on the Reversal of the Decision on Operating Licence for Štedionica za razvoj i obnovu d.o.o. Zagreb;
4. Decision on the Reversal of the Decision on Operating Licence for Gold štedionica d.o.o. Split;
5. Decision on the Reversal of the Decision on Operating Licence for the savings bank Mediteran d.o.o. Split;
6. Decision on the Reversal of the Decision on Operating Licence for Investicijsko- komercijalna štedionica d.d. Zagreb;
7. Decision on the Reversal of the Decision on Operating Licence for the savings bank Dugi pogled d.o.o. Zagreb;
8. Decision on the Reversal of the Decision on Operating Licence for Zagrebačka štedionica d.d. Zagreb.

In view of the current developments in the banking system, we hold it necessary to explain certain facts that would be helpful in a better understanding of the current situation regarding the specific financial institutions.

Item 1. According to the provisions of Article 111 of the Banking Law, a bank enrolled in the Register of Companies by the day of enactment of the aforementioned Law is obliged to submit a request to the Croatian National Bank, no later than December 1999, for issuing the licence to perform the activities specified in Articles 35, 36 and 37 (receipt of all sorts of deposits in domestic and foreign currency from sole traders and natural persons, including those natural persons whose business activity is registered in accordance with Crafts Law; granting credits; giving warranties and bank guarantees; performing transactions with foreign means of payment in the country (exchange transactions); acquisition of assets by issuing securities and by other means regulated or determined by the Croatian National Bank or included in a decision on operating licence for a bank; buying and selling, on its own behalf or on its clients' behalf, money market instruments (including, among other instruments, checks, bills and deposit certificates) and securities of the Republic of Croatia or Croatian National Bank; providing payment transactions services; commission services; receipt of all sorts of deposits; granting all sorts of credits, opening letters of credit, giving warranties and bank guarantees, and assuming other financial liabilities; conducting transactions with bills, checks and certificates of deposit on its own behalf or on its clients' behalf; borrowing, buying or selling financial derivatives (futures and options, etc.) on its own behalf or on its clients' behalf; performing transactions with securities on its own behalf or on other persons' behalf; issuing and managing means of payment (including cards, traveller's checks and bank orders); performing leasing and factoring; providing information on clients' financial standing at their requests; performing credit and payment transactions with foreign countries).

Krapinsko-zagorska banka d.d. Krapina did not submit to the Croatian National Bank the application for issuing the operating licence for performing the activities specified in Articles 35, 36 and 37 of the Banking Law, with the enclosed documentation regulated by the Decision on the Form and Content of the Application for Granting Bank Operating Licence (National Gazette No. 99/99) within the legally prescribed time limit.

In view of the fact that the above mentioned bank performs the operations prescribed by the Banking Law without the operating licence granted by the Croatian National Bank, the CNB Council has reached the Decision on the Reversal of the Decision on Operating Licence for Krapinsko-zagorska banka d.d. Krapina.

Item 2. The case of revoking the operating licence for the branch of Societe Generale was similar to the previously mentioned case. According to the provisions of Article 111 of the Banking Law, a bank enrolled in the Register of Companies by the day of enactment of the aforementioned Law is obliged to submit to the Croatian National Bank, not later than December 31, 1999, a request for obtaining the approval for performing the activities specified in Articles 35, 36 and 37 of the Banking Law.

Societe Generale Zagreb branch did not submit to the Croatian National Bank the application for issuing the operating licence for performing the activities specified in Articles 35, 36 and 37 of the Banking Law, with the enclosed documentation regulated by the Decision on the Form and Content of the Application for Granting Bank Operating Licence (National Gazette No. 99/99) within the legally prescribed time limits. It has informed the Croatian National Bank in a written form that its founder, Societe Generale Paris, intends to close the branch and sell all its operations to Bayerische Hypo-und Vereinsbank AG Munchen which has submitted a request for granting the licence to open the branch in the Republic of Croatia.

Since the above mentioned branch performs operations prescribed by the Banking Law without the operating licence granted by the Croatian National Bank, the CNB Council has reached the Decision on the Reversal of the Decision on Operating Licence for Societe Generale Zagreb branch.

Items 3, 4, 5, 6, 7, and 8. Regardless of admonitions and several orders given by the Croatian National Bank, containing measures for improving the condition in Štedionica za razvoj i obnovu d.o.o. Zagreb, Gold štedionica d.o.o. Split, savings bank Mediteran d.o.o. Split, Investicijsko-komercijalna štedionica d.d. Zagreb, savings bank Dugi pogled d.o.o. Zagreb, and Zagrebačka štedionica d.d Zagreb, it has been established that these banks have been operating contrary to the laws, regulations and measures prescribed by the Croatian National Bank and that it is likely that they will fail to meet the obligations to their creditors in a due manner because of risky and irregular operations.

More specifically:

Štedionica za razvoj i obnovu d.o.o. Zagreb

• lasting, years-long problems and failure to comply with the regulations established already by examination in 1997;
• on-site examination carried out on June 30, 1999 established a vault cash deficit amounting to 42 million kuna;
• on account of the established deficit, the savings bank reported a loss exceeding the amount of its risk-based capital;
• repeated, years-long disregard of restrictions on investment in material assets;
• failure to observe the regulations governing the classification of risky assets and book-keeping practices;
• failure to comply with the regulations governing the reserve requirement;
• the savings bank decided not to implement the measures proposed by the CNB but instead initiated an administrative suit which does not stay the execution of the measures;
• attempted registering of the savings bank with the Commercial Court as a bank without the CNB's approval;
• registering Mr Marijan Vidović as Chairman of the Management Board without the CNB's previous approval.

Gold štedionica d.o.o. Split

• the savings bank's giro account remained blocked for a longer period of time in the amount averaging 20 million kuna;
• failure to comply with the provisions of article 45 of the Banking Law on total large exposure;
• failure to comply with the provisions of article 43, item 3 of the Banking Law on restricting exposure to shareholders with over three percent of the savings bank's shares to 5 percent of the risk-based capital (exposure to companies in majority ownership of Mr Neven Dadić, who owns 100 percent of the savings bank's participations, ranges between 80-90 percent of the risk-based capital);
• carrying out certain transactions without prior adjustment of the risk-based capital;
• failure to comply with the obligation to report to the Croatian National Bank on the status of the implementation of the proposed measures for improvement.

Mediteran štedionica d.o.o. Split

• recapitalisation performed by means of a loan granted indirectly by the same institution;
• on several occasions, over 10 percent of voting right participations were acquired without a previous approval of the Croatian National Bank;
• order given for the recapitalisation annulment and additional provisioning which led to negative risk-based capital;
• the required recapitalisation from real ("fresh") sources was not accomplished;
• failure to comply with the obligation to report to the Croatian National Bank on the status of the implementation of the proposed measures for improvement;
• the savings bank's giro blocked for a longer period of time.

Investicijsko-komercijalna štedionica d.d. Zagreb

• examination in this savings bank in 1997 discovered a contrary-to-law recapitalisation. The CNB contested the savings bank's recapitalisation amounting to 137 million kuna out of the total amount of 143 million kuna that went into it;
• the savings bank initiated an administrative suit against the CNB's Decision which has not been resolved to this day;
• both the savings bank and the responsible person have a record of previous economic offences;
• failure to observe the provisions of the law on maintaining and setting aside reserve requirements;
• failure to comply with the regulations governing the classification of risky assets and book-keeping practices;
• carrying out operations contrary to Decision on Operating License;
• false and unupdated reporting to the Croatian National Bank;
• detected changes in ownership structure without duly informing the Croatian National Bank about it;
• failure to carry out most of the proposed measures for the improvement of the conditions in the savings bank.

Štedionica Dugi pogled d.o.o. Zagreb

• failure to comply with the regulations governing the classification of risky assets;
• negative risk-based capital (4.6 million kuna resulting from the above-mentioned non-compliance);
• performing exchange operations contrary to the provisions of the Law on the Foreign Exchange System, Foreign Exchange Operations and Gold Transactions (National Gazette 91A/93 and 36/98);
• exposure above the legally prescribed maximum (article 41 and 43 of the Banking Law);
• nonexistence of most of the prescribed by-laws referred to in article 76 of the Banking Law;
• the ordered recapitalisation not accomplished;
• failure to transform into a joint-stock company, which it was obliged to do until December 31, 1999;
• lasting liquidity problems (a regular, every-day user of the Money Market loans).

Zagrebačka štedionica d.d. Zagreb

• failure to comply with the regulations governing the classification of risky assets and book-keeping practices;
• false and unupdated reporting to the Croatian National Bank;
• failure to comply with the prescribed obligation on the reserve requirement;
• detected operating loss;
• the savings bank reached a decision on its transformation from a joint stock company into a limited liability company and reached a decision on the change of business which is contrary to Banking Law, and requested suspension of their banking business;
• the savings bank suspended its licensed activities for over six months.

In the light of the above stated facts, the Council of the Croatian National Bank reached decisions on the reversal of decisions on operating licenses for the mentioned financial institutions.