The Council of the Croatian National Bank, at its session held today, at 5:15 p.m. adopted the Decision to submit a request to the Commercial Court in Zagreb to open bankruptcy proceedings against Nava banka d.d., Zagreb, Tratinska 27.
The Decision was adopted pursuant to the provisions of Article 265, paragraph (1) and Article 267, paragraph (1) of the Credit Institutions Act (Official Gazette 159/2013) and Article 42, paragraph (3), item (9) of the Croatian National Bank Act (Official Gazette 75/08 and 54/13), after establishing the existence of three grounds for bankruptcy referred to in Article 266 of the Credit Institutions Act: Nava banka's assets do not cover its existing obligations, the bank has failed to meet the supervisory measures imposed by the CNB's decision and it has not met the conditions relating to own funds for a long period of time and its ability to meet its financial obligations in a timely manner has been jeopardised.
Prior to this Decision, the CNB Council refused to issue the approval to the Ukrainian PAT Bank Vostok to acquire more than 50% of the holdings in own funds and voting rights of Nava banka, estimating that the foreseen amount and the method of capital injection would not ensure the continuation of operations in accordance with regulations and good banking practice. The announced capital injection amount would not be sufficient to ensure the minimum required capital pursuant to Article 19 of the Credit Institutions Act and Article 93 of Regulation (EU) No 575/2013 (OJ L 176/2013). In addition to the minimum level of the initial capital, pursuant to Article 19 of the Credit Institutions Act, taking into account that the bank has been operating with operational losses, a sufficient reserve needs to be ensured for the bank's legal operation, which would prevent a possible violation of Article 93 of Regulation No 575/2013.
It is worth noting that the Croatian National Bank, within its supervisory powers, carried out an on-site examination of a segment of operations of Nova banka from 10 March 2014 to 28 March 2014 and identified significant deficiencies and illegalities in the operation. As a result of the findings of the carried out on-site examination, the CNB's decision of 10 June 2014 imposed on Nava banka the implementation of seven measures to increase the initial capital, at the same time increasing own funds, and to correctly evaluate on- and off-balance sheet items. Nava banka has failed to implement the supervisory measures imposed.
The on-site examination established that the capital adequacy ratio at the end of the previous year stood at –2.55%, and at the end of 2014 it was even –7.53%. The loss in 2013, established by the on-site examination, stood at HRK 59,984,000. The main cause of the negative operating result included a very poor quality of the credit portfolio, high costs of liquidity maintenance and high general administrative expenses. In addition, the bank's previous management board resigned on 14 July 2014, by which the bank – which with its assets of HRK 333m at the end of March 2014 accounted for 0.08% of the total assets of the banking system – also faced governance crisis.
In such circumstances, and taking into account the unsustainability both of the bank and of the proposed business plan, the CNB Council has adopted the above decision. In addition, for the purpose of preserving the assets of Nava banka, the CNB Governor adopted a decision to appoint a special administration that was to assume the responsibilities of the credit institution's supervisory and management boards up to the adoption of the court decision on the opening of bankruptcy proceedings.
In the period between the adoption of the CNB Council's decision on the request to open bankruptcy proceedings and the Commercial Court's decision, the legal measures prescribed by Article 267, paragraph (2) of the Credit Institutions Act shall apply:
"The decision of the Council of the Croatian National Bank on the submission of the request to open bankruptcy proceedings against a credit institution shall have the following effects:
1) temporary restriction of executions of orders for forced collection of payments debited to the credit institution's account in accordance with the law governing the execution of cash assets;
2) temporary restriction of credit institution's payments from all its accounts;
3) temporary restriction of credit institution's payments and transfers from the accounts of its clients;
4) temporary restriction of credit institution's provision of payment services via payment cards and
5) temporary restriction of all payments to the accounts of the credit institution and the accounts of its clients."
Debtors of the bank continue to be obliged to fulfil all their liabilities to the bank after the court adopted a decision on the request to open bankruptcy proceedings. Insured deposits will be available to their holders within the legally prescribed period and according to the prescribed procedure.