Central bank appoints temporary administrators to four banks

Published: 21/1/1999

Temporary administrators appointed by the Council of the Croatian National Bank are assuming their responsibilities on Friday (January 22) in Glumina banka d.d. Zagreb, Komercijalna banka d.d. Zagreb, Gradska banka d.d. Osijek, and Zupanjska banka d.d. Zupanja. They are taking over all the authorities of these banks' management, supervisory boards and assemblies. Their main task is to determine as thoroughly as possible the actual situation in these banks, to protect the interests of depositors and other creditors, as well as to protect the state as well as tax payers from further damage arising from unprofessional banking that led these banks into crisis.

This decision of the central bank's highest body is based on the new Banking Law, which came into force on December 26, 1998. According to this law the Croatian National Bank is obligated to appoint a temporary administrator or propose initiation of bankruptcy proceedings to an authorised court when it establishes that bank's potential losses arising from high-risk investments and relevant off-balance items exceed the guarantee capital of the bank and when the bank is incapable of making payments.

These legal requirements were met in the four mentioned banks; on-site examinations in Glumina banka in July and August of last year identified potential losses which on June 30, 1998 amounted to 1,219.5 million kuna with the guarantee capital being 393.6 million kuna. The bank has been incapable of making payments from July 23, 1998. The identified potential losses of Komercijalna banka on September 30, 1998 were around 201 million kuna, compared to its guarantee capital of 50.5 million kuna. The bank's giro account has been blocked from October 22, 1998. On-site examinations at the end of 1998 and beginning of 1999 showed that Gradska banka, with a guarantee capital of 181 million kuna, had on September 30, 1998 around 479 million kuna in potential losses. The bank's giro account has been blocked from January 17 of this year. On June 30, 1998 the potential losses of Zupanjska banka were 414 million kuna compared to its guarantee capital of 261 million kuna. The bank has been incapable of making payments from November 19, 1998.

The temporary administrators are appointed for a period of 6 months with the obligation to submit to the CNB Council within 45-60 days, a written report on the condition of the bank and their views on the possible solution of the crisis. During that period and up to the maximum of six months, savings deposits and other deposits in these banks will remain blocked, and the administrators have the obligation to take measures to protect the value of deposits.

In their reports to the Council of the CNB on the situation found in the banks and prospects for their future successful operation, temporary administrators will state the amount of the guarantee capital and reserves, potential losses arising from high-risk investments and other balance and off-balance items of various degrees of recoverability identified by asset classification, short and long-term indebtedness at home and abroad, due and outstanding receivables as well as immediate liabilities and arrears of a bank, locally and abroad. The report also has to give an account of the cash flow for projection of the bank's liquidity, a plan for an increase in the bank's share capital, a plan for a merger, amalgamation or take-over of the bank, a plan for selling the bank's stocks or assets and a possible recommendation to the Croatian National Bank for initiating bankruptcy proceedings over the bank in case of which the temporary administrator may make a plan for transferring a part of the bank's liabilities relating to its obligations with regards to savings deposits of citizens, with a relevant part of the assets of that bank to another bank.

It is obvious from the above-mentioned that the appointment of temporary administrators in problem banks does not mean the beginning of their rehabilitation and restructuring, nor is it a prejudgement of their final destiny. It is a measure aimed at reaching as complete and realistic a picture as possible of all liabilities and assets of these banks, preventing further damages and finding a solution which would be favourable for both depositors and deposits insurance system, and the public trust in the overall banking system.

The appointed temporary administrators are employees of the Croatian National Bank: Branko Gladovic in Glumina banka, Ivica Maloca in Komercijalna banka, Boris Bušac in Gradska banka and Berislav Boras in Zupanjska banka. To help them obtain faster and more efficacious results, in the procedure which is a complete novelty in the Croatian banking system, they will be joined by central bank examiners as well as teams of experienced experts in the most important fields of banking, "lent" to the CNB by several biggest Croatian banks.