CNB Council changes reserve requirement regulation

Published: 23/6/1998

The Council of the Croatian National Bank, chaired by Governor Dr. Marko Skreb, met on Tuesday, June 23, 1998 to review the conclusions of the Croatian Parliament on the state of the Croatian banking system. The Council emphasized that some of the conclusions are already incorporated in the banking bill and others are within the jurisdiction of other institutions. The Croatian National Bank will strive to realize those conclusions which fall within the competence of the Croatian central bank, taking into consideration the most important monetary policy goals, as well as its orientation towards stabilization.

In response, the Council of the CNB decided to abolish gradually the requirement for commercial banks to deposit 55 percent of foreign currency savings with a maturity of up to three months with foreign banks of acceptable rating or in foreign currency denominated NBC bills. Instead, the Council imposed a mandatory reserve requirement similar to that in force for kuna deposits. This means that banks will have to put aside 55 percent of foreign currency savings with a maturity of up to three months, keeping half of this amount in German marks or U.S. dollars with the central bank, and the other half in liquid assets in their accounts.

The requirement will be imposed gradually - by five percentage points every four weeks - in the period from September 16, 1998 to April 28, 1999. The Council decided to apply a gradual approach in order to avoid sudden changes, as well as to enable intervention, if some negative effects of this change appear, especially those that could exert negative influence on the maintenance of macroeconomic stability and international liquidity. On mandatory reserves denominated in foreign currency that will be kept with the central bank, the CNB will pay interest rate that equals the average interest rate realized on placements abroad.

Having in mind the regulation of most European countries, the Council of the CNB decided to abolish the decision forbidding the HRK 1,000-banknote to be taken abroad. The total amount of domestic currency that may be taken abroad continues to be HRK 2,000.

The Council of the Croatian National Bank was briefed on the introduction of the new convertible mark as a legal tender in the neighboring Bosnia and Herzegovina, where so far the kuna was an important means of payment. It was estimated that the introduction of the new currency currently underway in the neighboring state will have no noticeable consequences on the stability of the kuna exchange rate or the monetary policy of the Croatian central bank. The Council used this occasion to confirm again without hesitation the convertibility of the kuna against the German mark or any other hard currency.

At the Tuesday meeting, the Council of the CNB granted a license to Stedionica Splitsko-dalmatinska for performing foreign exchange operations, and agreed on the nomination of Mr. Mato Misic for member of the management board of Credo Banka d.d. Split.