CNB's selection criteria for the audit of a group of banks misunderstood

Published: 11/5/1998

In light of the recent news reports regarding the savings and loan association "Pučka štedionica" Sutla, the Croatian National Bank finds it necessary to draw public attention again to the following facts:

The current Law on Banks and Savings Banks sets forth that only financial institutions which have been granted operating license by the Croatian National Bank may register with the Commercial Court carrying the name containing the word "bank" ("banka") or "savings bank" ("stedionica"). This means that the aforementioned institutions have fulfilled the legal criteria defining the establishment of a bank or a savings bank, and that their operation will be supervised by the central bank. Consequently, the deposit insurance scheme provided by the State Agency for Deposit Insurance and Bank Rehabilitation applies only to those financial institutions which have been granted operating license in the way described above and which have been entered in the court register as "banks" or "savings banks" . Under the deposit insurance scheme amounts up to HRK 30.000 are 100 percent covered, and amounts from HRK 30.000 to HRK 50.000 have a 75 percent coverage.

Referring to risks in the financial system, the Croatian National Bank would like to use this opportunity to respond to certain news reports suggesting that the Croatian National Bank has characterized all medium-sized banks to be audited in the first phase of the special audit program as high risk or problematic.

In the press release published after the selection of the auditor, the CNB pointed out that once this particular group of banks has been audited, audits of other banks are to follow. However, this program focuses primarily on the examination of medium-sized banks and the audit of this particular group of medium-sized banks is not based on estimated or assumed degree of risk associated with a particular bank. The CNB selected this group of medium-sized banks because it already had a reliable insight into the condition of the largest banks due to the fact that they had been listed on the stock-exchange, or had undergone rehabilitation. On the other hand, the program does not focus on the smallest banks because they are less important from the point of view stability and safety of the banking system as a whole.