Central bank proposes bankruptcy proceedings for Ilirija banka and Gradjanska štedionica

Published: 29/7/1998

On Wednesday July 29, 1998, the Council of the Croatian National Bank, chaired by Dr. Marko Skreb and attended by Mr. Borislav Skegro, Vice President of the Croatian Government and Minister of Finance, discussed current economic and monetary developments, as well as the condition of Glumina banka d.d. Zagreb. The Council was informed of the proposal to start bankruptcy proceedings at Ilirija banka d.d. Zagreb and Gradjanska stedionica d.o.o. Karlovac (savings bank).

The Council of the Croatian National Bank was informed of developments related to Glumina banka and the rehabilitation and restructuring plan that was submitted to the Croatian National Bank on July 21, 1998. Relevant departments of the central bank have started an intensive assessment of the proposal, aimed at determining the actual condition of Glumina banka. A concrete decision on future operations of the bank can be proposed only upon the completion of this procedure. It is estimated that such a decision could be taken as early as the end of August, i.e. far before the expiration of the 60 day legal deadline given to the central bank for the task. There are three possible solutions to this case - (i) upon CNB proposal, the Government of the Republic of Croatia can approve the rehabilitation of the bank, (ii) bankruptcy proceedings can be initiated, or, the most desirable solution, (iii) Glumina banka overcomes current problems on its own, or with the help of an adequate strategic investor.

The central bank proposed bankruptcy proceedings for Ilirija banka and Gradjanska štedionica as the CNB was unable to collect funds extended to the bank through interventive loans. These institutions have been experiencing operational problems for a prolonged period, and attempts to recapitalize and other efforts have not brought about the desired results. Since these are smaller financial institutions, their bankruptcy cannot have significant effects on the stability of the Croatian financial system. Moreover, the CNB Council believes that the closing of banks and savings banks which cannot operate effectively, or cannot find adequate strategic partners, is an appropriate means for strengthening the efficiency and credibility of the banking industry in Croatia.

Household savings deposits in these financial institutions are insured with the State Agency for Deposit Insurance and Bank Rehabilitation up to the amount of 100,000 kuna. Under the Agency's Statute, including its amendments discussed and confirmed during the Council's meeting yesterday, the Agency would be obliged to start paying out insured savings deposits that are held with problem banks within 180 days from the publication of the Decision on starting of bankruptcy proceedings in the "National Gazette".