The Council of the Croatian National Bank met on Wednesday, September 18, 1998 to examine the economic feasibility of the rehabilitation and restructuring of Glumina Banka d.d. Zagreb. After a thorough discussion about all relevant indicators and possible legal solutions, the Council of the CNB concluded that there was no economic foundation upon which to propose the rehabilitation of Glumina Banka to the government according to the Bank Rehabilitation Law. The Council of the CNB recommended that the responsible government authorities protect citizens' deposits in this bank, regardless of the final outcome. Glumina Banka began its operations in 1994, and by the end of last year was the sixth largest bank in Croatia in terms of assets and the eigth largest bank in terms of equity capital. The majority of bank shares are privately owned.

These conclusions end the appraisal process of the feasibility of Glumina Banka's rehabilitation which began on June 23, 1998. Glumina Banka submitted a proposal for a rehabilitation and restructuring program on July 21, 1998, followed by two supplements on July 29 and August 10. A detailed analysis of Glumina Banka's operations and the collectability of assets conducted by central bank examiners from July 22 to August 21 showed that the bank has difficulties not only with liquidity, but also more significantly with solvency: at the end of June, Glumina Banka's guarantee capital amounted to about 394 million kuna and its potential losses totaled nearly 1,054 million kuna. Furthermore, the bank's records revealed excessive credit exposure to related parties (enterprises in the Glumina Group), as well as numerous other evidence of poor bank and risk management, including evasion of regulation and recommendations of internal auditors and central bank examiners. In addition, there were indications that the bank had attempted to recapitalize by extending credits for the purchase of its shares.

In the meantime, the CNB held discussions with representatives of possible strategic foreign investors interested in Glumina Banka which, the bank announced, could have helped it to stabilize its financial situation and future operations. However, by the deadline of the review process of the proposed rehabilitation, the bank was not recapitalized and no large Croatian banks showed an interest in taking it over. The proposed self-rehabilitation would have required another CNB credit of 400 milion kuna and the bank's plans for the collection of funds through the issue of securities were unconvincing.

Since indicators of the bank's past operations and projections of its future operations are not favorable, the Council of the CNB could not propose to the government the rehabilitation of Glumina Banka with government funds.