Will stricter capital adequacy provisions force small banks to recapitalize?

The Croatian Parliament discussed the proposal for the law on credit institutions in today’s continuation of the session, which is set to replace the current Banking Act from January 1st.

State Secretary in the Ministry of Finance Zdravko Marić emphasized that this is an adjustment of the financial system to European directives and the liberalization of the system. To ensure that liberalization does not jeopardize the stability of the banking system, the Government proposes to increase the required adequacy of guarantee capital from the current 10% to 12%, but banks will be given enough time to adjust, as these provisions will only come into effect on July 1st next year, said Marić.

The opposition, however, is unclear why the entire law does not come into effect from July 1st, and SDP member Davor Bernardić questioned whether this means that the law will be changed in the meantime, due to the turbulent changes it brings. He warned that stricter capital adequacy provisions could force small banks to recapitalize. “Small banks in Croatian ownership will have to recapitalize abroad, merge with foreign banks, or be sold abroad,” said Bernardić, reminding that more than 90% of the banking sector is in foreign hands.

He strongly opposed the idea of introducing an independent member to the boards of banks. “I do not want to believe that this is intended to open space for political corruption,” said Bernardić. He also expressed concern that the fee to the Croatian National Bank for supervision could be paid by end users instead of banks. He emphasized that this is an extremely important sector, as bank profits have increased while import coverage and liquidity have fallen, while citizens are heavily indebted for personal consumption, and half a million of them live below the poverty line. HDZ member Goran Marić is convinced that the law will further strengthen the sector through the obligation to organize internal control functions – risk control, compliance monitoring, and internal auditing. The session continued with a discussion on the proposal for the law on electronic money institutions. (H)