Croatia, a beautiful southeastern European country, is known for its rich history, picturesque coastline, and vibrant culture. However, its banking sector has faced challenges in recent years, with concerns regarding bank failures and their impact on international creditors. Croatian banking law is primarily governed by the Credit Institutions Act and the Law on the Croatian National Bank (HNB). These laws outline the regulations, procedures, and mechanisms for the prevention and resolution of bank failures. The Credit Institutions Act, in particular, addresses the regulatory framework for licensing, supervision, and resolution of banks.

Bank failure in Croatia is generally defined as a situation where a bank is unable to meet its obligations to depositors, creditors, or other stakeholders, and its capital is significantly eroded or depleted. This may be due to insolvency, liquidity issues, or other severe financial distress.

Bank failure in Croatia is determined through a combination of quantitative and qualitative assessments. Quantitative assessments include analyzing key financial ratios, such as capital adequacy, asset quality, and liquidity. Qualitative assessments involve evaluating the bank’s management, governance, risk management, and overall business model. The Croatian National Bank (HNB) is responsible for conducting these assessments as part of its supervisory role.

The HNB, as the central bank and supervisory authority, is responsible for determining whether a bank in Croatia has failed or is likely to fail. Its legal mandate, as outlined in the Law on the Croatian National Bank, includes licensing, supervision, and resolution of credit institutions. If the HNB concludes that a bank is failing or likely to fail, it can take corrective measures or initiate resolution proceedings.

Bank failure in Croatia can result in several outcomes, including restructuring, recapitalization, sale of the business, establishment of a bridge bank, asset separation, or liquidation. The specific course of action depends on the nature of the failure, the bank’s financial condition, and the potential impact on financial stability.

Some common reasons for bank failure in Croatia include poor corporate governance, weak risk management, inadequate capital buffers, aggressive growth strategies, and economic downturns. Banks with high levels of non-performing loans (NPLs) or excessive exposure to certain sectors may also be more susceptible to failure.

The HNB plays a pivotal role in bank supervision and resolution planning in Croatia. Its primary objectives are to preserve the critical functions of the bank, ensure the continuation of the organization in times of financial distress, and minimize the potential impact on financial stability. This is achieved through ongoing supervision, stress testing, early intervention measures, and the development of resolution plans for banks.

The HNB, acting as the resolution authority in Croatia, has the power to initiate and implement resolution proceedings for banks within its jurisdiction. The steps involved in this process may include the appointment of a temporary administrator, the implementation of resolution tools, and the coordination with other relevant authorities and stakeholders. The resolution process aims to ensure an orderly and efficient response to bank failures while minimizing the impact on the broader financial system and preserving critical functions of the failed bank.

Croatia offers several options for dealing with failed banks, including reorganization, recapitalization, restructuring, or dissolution. Key resolution tools include the sale of the business, the establishment of a bridge bank, and asset separation. These tools aim to facilitate an efficient resolution process by transferring assets and liabilities to new or existing entities, maintaining critical functions, and allowing for the orderly wind-down of non-viable operations.

Croatian law provides protection for account deposits and creditor interests through the State Agency for Deposit Insurance and Bank Resolution (DAB). The DAB manages a deposit insurance fund that covers deposits up to 100.000 euro per depositor per credit institution, paid in Croatian Kuna. This ensures that eligible depositors can recover their funds in the event of a bank failure. Additionally, the resolution process seeks to minimize losses for creditors by prioritizing their claims according to a pre-defined hierarchy, with secured claims taking precedence over unsecured claims.

Croatia’s legal and regulatory framework aims to ensure that non-viable firms exit the market in an orderly manner. This is achieved through the HNB’s supervisory role, which includes monitoring bank performance, implementing early intervention measures, and initiating resolution proceedings when necessary. The resolution process is designed to minimize disruption to the financial system, protect depositors and creditors, and maintain critical functions of the failed bank.

In cases where a bank’s failure cannot be resolved through other means, liquidation may be the final option. The liquidation process in Croatia is governed by the Credit Institutions Act and involves the appointment of a liquidator by the HNB, the realization of assets, and the distribution of proceeds to creditors according to their priority. The liquidation process aims to wind down the operations of the failed bank in an orderly manner while ensuring that creditors receive the maximum possible recovery on their claims.