A lack of Credo in Croatia's banking sector

By bne IntelliNews November 28, 2011

Guy Norton in Zagreb -

In the latest example of financial shenanigans at Central and Eastern European banks, Credo Banka has been shut down and another four banks are being monitored by the Croatian regulatory authorities.

On the same day, November 23, that Sime Luketin, former chief executive officer of Credo Banka, was voted onto the supervisory board of Hajduk Split, Croatia's second biggest football team after Dinamo Zagreb, the bank he used to head was closed down by the Croatian authorities after it emerged that its owners had allegedly asset stripped the Split-based lender.

The closure of Credo Banka, therefore, unfortunately pairs the Dalmatian port of Split with the English costal town of Portsmouth, whose football team is owned by the Russian oligarch Vladimir Antonov, who was arrested on November 23 in London on suspicion of fraud at Banka Snoras in Lithuania and Latvijas Krajbanka in Latvia.

Though Snoras and Krajbanka were relatively big players in their home markets - number five and six respectively - Credo Banka accounted for just 0.4% of banking assets in Croatia. However, while Portsmouth Football Club, which went into administration in 2010, is a bit player in the second league of English football, Hajduk Split is a giant of the Croatian premiership with a fanatical fan base that has long worried about the role played by so-called leading Croatian businessmen in its affairs.

No surprises

The Croatian central bank had expressed reservations about Credo Banka's operations since May when it took over supervision of the bank, which had as of end-March 2011 declared that its capital adequacy ratio stood at 12.28%, just above the relatively high 12% minimum required in Croatia. Subsequent investigations, however, have shown that the bank has effectively been asset stripped by its principal owners, who had been granted unsecured and poorly documented loans well in excess of the 10% of equity capital level allowed under Croatian legislation.

Croatian banking regulators were at pains to point out that individual retail depositors holding up to HRK400,000 (€53,470) would be fully covered by the deposit guarantee scheme - upped from HRK100,000 in 2008 to install confidence in the banking system - and could be reimbursed as early as November. However, they conceded that retail and corporate depositors holding more than HRK400,000 with Credo Banka would have to wait until the conclusion of bankruptcy procedures before they saw their funds returned. That process could take as long as two years.

Additionally, Davor Holjevac, vice governor responsible for banking supervision at the Croatian National Bank, acknowledged on Croatian TV that a further four banking minnows - Bank Kovinica, Banka Varazdin, Karlovacka Banka and Nava Banka - were also being monitored. Although at less than 2% of total assets, the five banks are hardly likely to pose any systemic threat to the Croatian banking system, which is one of the best capitalised in the Emerging European region, their financial difficulties have served to spook depositors in Croatia, which is due to join the EU on July 1, 2013.

Meanwhile credit rating agency Fitch Ratings has picked Croatia, alongside southeastern neighbours Bulgaria and Serbia, as being potentially the most exposed to the continued sovereign debt and banking crisis in the Eurozone. According to Fitch, roughly 91% of banking assets in Croatia are owned by lenders from the embattled single currency area. Some 48% of the country's banking assets are held by Italian banks - including the two leading lenders Zagrebacka Bank and Privredna Banka Zagreb - while Austrian banks, principally local subsidiaries of Raiffeisen Bank and Erste Bank, hold roughly 36.4%. Other major Eurozone banks operating in Croatia include Splitska Bank owned by France's Société Générale.

Fitch says that whereas foreign ownership in Croatia was previously a strength of the country's banking sector, it is now arguably a weakness, as the parent banks are now increasingly likely to repatriate money from their CEE subsidiaries to shore up their finances at home.

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