Authorisation of Credo banka withdrawn

Published: 22/11/2011

In view of the identified serious illegalities in the operation of Credo banka d.d., Split and its failure to implement the measures imposed by the central bank to eliminate the established irregularities, the Croatian National Bank Council decided to withdraw the bank's authorisation at its extraordinary session today. At the same time, the Council adopted a decision to initiate compulsory winding-up proceedings of that bank. The proceedings are to be conducted by liquidators appointed by the State Agency for Deposit Insurance and Bank Rehabilitation, which means that all powers of the former members of the management and supervisory board of Credo banka d.d. and of its general meeting have ceased.

The CNB on-site examination, which began in late May 2011, included an assessment of capital adequacy, asset quality and credit risk management, as well as an analysis of the deposit structure and liquidity risk. As it was established that the situation was much worse than presented in Credo banka's reports, the bank remained under enhanced CNB supervision in attempts to keep the bank's operations within the legal framework. This was to be accompanied by a capital injection necessary for its more stable operations in the future.

As at 31 March 2011, Credo banka reported a capital adequacy ratio of 12.28 percent, slightly above the prescribed minimum. However, the on-site examination of the bank revealed that the ratio actually had a negative sign. This means that the bank has no own funds available and that it has operated with an (unreported) loss. The loss is largely a consequence of placements in excess of the legally prescribed limits to the bank's majority shareholders and persons connected with them who lacked sufficient creditworthiness and strong collateral; the placements were without defined purposes and calculated fees and costs of payment operations, and with contracted one-off repayment of principal and interest and several extensions of payment terms.

To illustrate the practice established in Credo banka d.d. - which did not comply either with applicable legal regulations and the bank's bylaws or with the basic principles and procedures of sound banking - it is sufficient to state that loans granted to one of the two groups of majority shareholders and persons connected with them (Adut-Barać group) and loans to the other group and persons connected with it (Alkom-Vuković group) amounted to 60 percent and as much as 84 percent respectively of the bank's own funds at end-March, while the law stipulates that exposures to persons in a special relationship with a bank may not exceed 10 percent of the bank's own funds. In other words, the loans approved by Credo banka to these two groups - whose representatives also served in the bank's credit committee - exceeded by a large amount the funds invested in the bank's share capital by these two groups.

Majority shareholders of Credo banka (the two mentioned groups held 86.58 percent of the bank's share capital as at 31 August) failed to meet both their credit obligations to the bank in a timely manner and several requests of the CNB to increase the bank's capital. Furthermore, the bank did not implement other measures imposed by the CNB.

In view of the established performance indicators and actions of the bank's management board and owners, the CNB Council concluded that the current situation offers no reasonable prospect of stabilisation and successful future operation of the bank and adopted a decision to withdraw the bank's authorisation. The bank accounts for around 0.44 percent (slightly over HRK 1.4 billion) of total Croatian banking sector assets. Savings deposits of natural persons insured with the Stage Agency for Deposit Insurance and Bank Rehabilitation, which stood at HRK 465 million as at 31 October, will be at free disposal of their owners.