At its meeting held on Wednesday, November 3, 1999 the Council of the Croatian National Bank, chaired by Governor dr. Marko Škreb, continued its discussion on the situation in the Croatian banking system and on the guidelines for the development of the system. The Council also reviewed recent economic and monetary developments and made several decisions acting in accordance with its authority.
Related to the further development of the Croatian banking system the CNB Council concluded that, according to a number of indicators, the present situation in the system is better than it was in the past few years, but is still not satisfactory. Basic goals to be achieved in the process of directing and assessing the development of the banking system are as follows: implementation of principles of sound and safe banking operation in order to have banks operating with profit and taking adequate care of interest of savers and other depositors with whose money they are actually operating; providing broader and cheaper financial services of better quality to citizens, enterprises and the government; reducing the price of capital and narrowing the spread by applying international standards in order to reduce the level of operating costs and by exercising better risk management. In international business transactions, especially in those with European economic integrations, Croatian banks should support effectively the interests of Croatian economy which is aiming at more developed and more diversified cooperation with these integrations contributing ultimately to the development, growth, and stability of the economy as well as to the well balanced current account. Further important goal to be achieved by the Croatian banking system is the improvement of the currency structure of resources through the growth of domestic currency savings.
Especially important role for the maintenance of stability and enhancement of confidence in the Croatian banking system will be the development and consequent implementation of mechanisms to be used to spot - in a timely manner - and remove from the market those banks which do not operate according to principles of sound and safe banking operation. The Croatian National Bank will certainly play a very important role in that process. However, the results of central bank's efforts greatly depend on the overall economic environment in which banks operate as well as on the coordinated and timely action of other institutions which are to participate in resolving crises and punishing malpractices in problem banks. That is an important precondition which has to be fulfilled if the Croatian economy is to have the necessary support from effective, reliable and competitive banking system and if the moral hazard inherent to operating with depositors' money and the cost of eliminating bad banks are to be reduced to the lowest possible level.
Having reviewed recent economic developments, the CNB Council concluded that they still do not point at the expected economic revival. In the first nine months of this year industrial production was 2.8 percent lower than in the same period last year (in the third quarter of 1999 industrial production fell by 4.6 percent). Data for the first eight months of 1999 show that, along with the decrease of industrial production, retail trade turnover decreased by 7.6 percent, the volume of construction works by 5.7 percent and the number of tourist night-stays by 15.8 percent. In September, the number of registered unemployed persons totaled 326,500 which is about 40 thousand persons or 13.9 percent more than at the end of September 1998. Consequently, the rate of unemployment in September was 19.6 percent.
International trade figures for the first nine months of 1999 show that merchandise exports amounted to USD 3.16 billion - a 5.7 percent decrease compared to the same period last year; merchandise imports amounted to USD 5.46 billion which - a 9.7 decrease compared to the 1998 data. Thus, merchandise trade deficit amounting to USD 2.48 billion was about 14.3 percent lower and current account deficit amounting to USD 1.03 billion 19.8 percent lower than the deficit recorded in the first three quarters of 1998.
Data on movements of prices in October are not available yet. The exchange rate of the kuna remained stable in October. The fact that, recently, the amount of kuna denominated CNB bills subscribed by banks increased and the amount of foreign currency denominated CNB bills subscribed by banks decreased indicates that banks do not expect significant exchange rate fluctuations in the coming period. Another favorable indicators of movements in the banking system is the fact that the spread has narrowed to below 10 percentage points which has not been recorded since the period before the breaking out of Dubrovačka banka crisis. Major impact on the reduction of the spread had the exit of a number of problem banks from the market, which is confirmed by the fact that in the period from May to September this year the spread narrowed by 2.4 percent.