After 15 Years, Croatia to Bail Out a Bank

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A bail out for Jadranska Banka.

Jadranska Banka from Šibenik, after many years of struggling with losses and a lack of capital, has entered bailout process which will be led by the State Agency for Deposit Insurance and Bank Rehabilitation (DAB), which means that the emergency management has been named and that the bank will continue with regular operations, reports Jutarnji List on October 11, 2015.

“The opening of the process does not bring about any other changes, except in management, and Jadranska Banka will continue its regular operations”, explained DAB which pointed out that the bank, despite the failure to comply with regulatory requirements, “has a very good and stable level of liquidity”.

Unlike some other banks, like Centar, Credo and Nava, three small banks which went bankrupt in recent years, Jadranska Banka has received a new chance to survive, after the DAB had decided to bail out a bank for the first time in 15 years.

Croatian National Bank has based its bailout proposal on “indisputable” claim that it was in the public interest, according to two main objectives. First goal is to ensure the availability of credit and payment services in the Šibenik-Knin County and to protect public funds.

As far as the second reason is concerned, it is important to know how much the process will cost, and what would be the cost of bankruptcy. According to estimates of the Croatian National Bank (HNB), the cumulative losses of the bank amount to 322.1 million kuna, while its assets are 25.3 million kuna less than total liabilities.

“This is an interim assessment of the HNB, and now the DAB will implement the so-called independent assessment of assets and liabilities. The burden of accumulated losses will first be borne by existing shareholders with a reduction of share capital, and then, if necessary, with other supplementary capital instruments. If that is not enough, the bailout process will cover the remaining losses”, explained Marija Hrabac, director of the DAB. She stressed that the bailout process will not be covered at the taxpayers’ expense, and that it will all be financed from the Rehabilitation Fund and the Deposit Insurance Fund. Although the DAB at this time does not want to predict the total cost, it is estimated that it will take at least 100 million kuna. That will be followed by the process of recapitalization of the bank, and estimates suggest that the new owners will have to provide about 200 million kuna.

On the other hand, if the HNB had proposed bankruptcy instead of the bailout, the DAB would have to pay out insured deposits to customers. According to available information, the bank’s insured deposits amount to 1.7 billion kuna. So, for the DAB it is obviously much more acceptable to cover the cost of the bailout than to pay out the insured deposits. However, the question remains who will be interested to invest in the capital of the bank after it exits the bailout process.


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