The main topics discussed at the Wednesday meeting of the Council of the Croatian National Bank were the results of the reports produced by the temporary administrators appointed to Gradska banka d.d. Osijek, Komercijalna banka d.d. Zagreb and Zupanjska banka d.d. Zupanja at the end of January this year. The members of the Council agreed that the performance of the temporary administrators in the ailing banks is to be highly appreciated. Although the aforementioned banks account for only 3.15 percent of total assets of the Croatian banking system, the extensive and detailed discussion on the final resolution of the crisis in these banks was not completed at the Wednesday meeting. It is to be concluded by the end of the next week, after further analyses have been conducted and the coordination of measures with government bodies in charge of handling the consequences of the decisions on the aforementioned banks has taken place, so that the interests of depositors could be protected and the damages to the government budget and the overall credibility of the Croatian banking system as a whole reduced as much as possible.

The findings of the temporary administrators confirmed the assumption that the banks to which they were appointed were insolvent, i.e. that their potential losses exceeded significantly the amount of the guarantee capital. Further, the main characteristics of the management of these banks, which brought them to such distressed situation, coincide to a very high extent. These are as follows: bad asset management, financing of bank's growth on the basis of high interest rates, extensive connected lending, concentration of decision making processes in one person or in a very small group of persons, absence of internal control mechanisms, noncompliance with regulation and even abuses which fall within the competence of judicial bodies.

At the Wednesday meeting, the Council of the Croatian National Bank decided on introducing certain changes in the monetary policy. Thus, the discount rate was increased from 5.9 to 7.9 percent, signaling to banks and savings banks not to expect the relaxation of the restrictive monetary policy. Although the pressure on the exchange rate of the kuna became weaker in the past two weeks and the demand-supply relation on the foreign exchange market more balanced, the Council of the CNB decided on introducing a gradual reduction of the use of foreign currency denominated CNB bills as a pledge for Lombard loans - from the current 50 percent to 40 percent (as of April, 1999) and to 30 percent (as of May, 1999). This should exert positive influence on the growth of interest for kuna denominated CNB bills.