ࡱ> #` lbjbjmm -3|%   4DDD8DD4qFF"FFFGGGppppppp$arhtq] @_GG@_@_qFFeqFfFfFf@_8F FpFf@_pFfFf^h| hFF KaVDRchi{q0qhoudou$hou h GPFfUwZGGGqqe^GGGq@_@_@_@_444d>D444D444 Author: Zdenko Prohaska, Ph.D. * University of Rijeka Faculty of Economics Vukovarska 58 HR-51000 Rijeka Croatia Tel: ++385-51-353777 Fax: ++385-51-675750 E-mail: zdenko.prohaska@ri.hinet.hr Title of the article: Impact of EURO on European and Croatian Financial System ABSTRACT: In this paper the Euro and its impact on European and Croatian financial system is examined. It is expected that after January 1, 1999 a single currency and greater capital mobility will lead to more competition among financial institutions , i.e. banks, insurance companies, investment funds, pension funds. This will result in further disintermediation, competition and consolidation in the financial sector in most European countries. To answer the question what implications will this process have on Croatias financial system a comparative analysis is done regarding the central bank system in Europe (ECB - European Central Bank in Frankfurt) and in Croatia, after that the banking system in several European countries is examined focusing especially on wholesale banking and retail banking and compared again with the Croatian banking system. Introduction The goal of this paper is the analysis of EURO and its implications for European and Croatian financial system . It is expected that after January 1, 1999 a single currency and greater capital mobility will lead to more competition among financial institutions , i.e. banks, investment funds, pension funds, insurance companies. This will result in further disintermediation, competition and consolidation in the financial sector in most European countries. To answer the question what impact will this process have on Croatias financial system a comparative analysis is done regarding the central bank system in Europe (ECB - European Central Bank in Frankfurt) and in Croatia. After that the banking system in several European countries is examined and compared again with the Croatian banking system. Furthermore, the importance of other financial institutions is pointed out as well. 1. European Central Bank According with the treaty signed in Maastricht on February 7, 1992, Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain replaced their national currencies with the Euro on January 1, 1999, based on conversion rates irrevocably fixed on December 31, 1998. In preparation for this moment, the 11 countries had implemented policies enabling them to achieve a high degree of economic convergence while putting in place the institutional and legal frameworks for conducting a single monetary policy the task of the Eurosystem, which comprises the Frankfurt-based European Central Bank (ECB) and the national central banks (NCB) of the 11 Euro area countries. The ECB was established on June 1, 1998 (in succession to the European Monetary Institute, which had carried out preparatory work), together with the European System of Central Banks (ESCB) which comprises the ECB and the 15 national central banks of European Union (EU) member countries. The Eurosystem is governed by two of the ECBs decision-making bodies the Executive Board and the Governing Council. The main task of the Executive Board, which consists of the ECBs president, vice-president, and four other members, is to implement monetary policy in accordance with the guidelines and decisions laid down by the Governing Council, by giving instructions to the national central banks. In addition, it is responsible for the current business of the ECB. The Governing Council, which is responsible for formulating the single monetary policy and setting guidelines for its implementation, comprises the Executive Board and the governors of the national central banks of the 11 Euro area countries. Each member has one vote. The president of the EU Council and a member of the European Commission can also participate in the meetings but do not have the right to vote. Most decisions, including those on monetary policy, can be taken by simple majority. However, votes for decisions that affect the positions of the national central banks as shareholders of the ESCB (for example, relating to the capital and the foreign exchange reserves of the ECB) are weighted by the share of each national central bank in the ECBs capital (the votes of Executive Board members are given a weight of zero). So long as not all EU member states participate in the Euro area, the General Council, the third decision-making body of the ECB, will govern the ESCB. It consists of the president and vice-president of the ECB and the governors of the national central banks of all 15 EU member countries. As the central banks of the EU countries that have not (yet) adopted the Euro (Denmark, Greece, Sweden, and the United Kingdom) continue to pursue national monetary policies, they will not participate in decisions related to the single monetary policy for the Euro area. They will, however, have the opportunity to discuss monetary policy issues and their exchange rate relations with the Euro. In this context, the General Council contributes to the necessary preparations for fixing the exchange rates of the currencies of the four nonparticipating countries to the Euro. Tasks of ECB The tasks of ECB are set out in Article 2 and 3 of the ECB Statute and are, as follows: a) to maintain price stability b) to define and implement the monetary policy of the Community, c) to conduct foreign exchange operations consistent with the provisions of Article 109 of the Maastricht Treaty, d) to hold and manage the official foreign reserves of the Member States, e) to promote the smooth operation of payment systems and f) to contribute to the smooth conduct of the policies of the authorities responsible for the prudential supervision of credit institutions and the stability of the financial system. (Kenen, 1995, p.31) Furthermore, in Article 107 of the Maastricht Treaty and Article 7 of the ESCB Statute guarantee the independence of the ECB, the national central banks, and the members of their decision-making bodies in exercising their powers and carrying out their duties. They are not allowed to seek or take instructions from the government of any member state, any organisation of the European Community, or any other body. Moreover, these governments, institutions, and bodies are obliged to refrain from trying to influence the ECB or the national central banks in the performance of their tasks. (Issing, 1999, p. 19) With regard to monetary policy ECB can use three types of instruments: reserve requirements, standing facilities, and open market operations (OMOs). The use among them depends strongly on views regarding the respective roles of the central bank and markets in trying to stabilise the system. Reserve requirements are deposits that banks are required to hold with the central bank to back their own deposit liabilities and they fulfil two monetary functions: monetary control and money market management. Standing facilities are central bank financing facilities for commercial banks that can be activated at their decision. There are three types of facilities existing: marginal lending facilities (a Lombard facility), at above-market rates; lending (discount) facilities close or below to market rates and deposit facilities. Open market operations can be the most successful instrument in steering day-to-day developments in the money markets. They are the main instrument for providing and withdrawing liquidity, guiding interest rates, and if necessary performing signalling functions. There are regular OMOs, which normally take place at prespecified intervals (e.g., weekly, biweekly) and fine-tuning OMOs that could be implemented according to the short-term liquidity developments. Repos will be the preferred method in conducting OMOs because they increase the central banks flexibility in regard to the maturity of its interventions. 2. Recent developments in the EU banking systems A number of general developments have characterised the EU banking systems in the recent past. First, further decreases in interest rates were recorded in the course of 1998. This downward trend was especially pronounced in those EU countries, which were still recording a substantial differential with long-term German rates. As a consequence, the banks concerned have made substantial gains on their securities portfolios. In the short term, the decrease in interest rates is beneficial to banks due to capital gains and increased income from maturity transformation, whereas in the long term, a low level of interest rates will reduce the margin earned by banks on their interest-free or low interest rate resources. Second, against the rather favourable intra- European developments, the protracted Asian financial crisis, the developments in Russia and Latin America and the prolonged difficulties in the Japanese banking sector have been and continue to be a source of concern. Third, a shift on the assets side from the public to the private debtors has been observed as a consequence of the reduction in public debt due to the Stability and Growth Pact. The consolidation of this process might entail a more risky asset profile of credit institutions. Fourth, an increase in mergers and acquisitions within the EU banking systems has been a part of a wider trend affecting other regions of the world and other sectors. Some of the mergers and acquisitions have occurred on a cross-border basis. With regard to bank profitability, data available until end-1997 indicate that a reversal in the downward trend in profitability has taken place in the European Union since 1994. Average return on assets (ROA) has increased from 1994 to 1996. (See table 1) Table 1 Bank Profitability in Europe ROA 1994*ROA 1995*NIM 1994*NIM 1995*Belgium--1.981.76Denmark0.291.202.372.10Finland-0.69-0.162.732.12France0.170.272.512.21Germany0.520.562.962.60Italy--2.973.06Netherlands0.690.721.661.70Spain0.700.793.983.23Sweden0.551.23-0.995.52United Kingdom1.221.871.681.66 */ ROA - Return on assets (in percent) NIM - Net interest margins (in percent of average earning assets) Source: The IBCA Ltd., OECD, BIS Bank for International Settlements, Basel Those good results were mainly due to the favourable economic conditions. Both the 1994 to 1997 increases in non-interest income and the relative reduction in net provisions reflect this. One of the reasons is the downward trend in interest rates, which contributed to the boosting of capital gains and, more generally, trading and underwriting activities. However, this additional income has to be considered to a large extent as a windfall gain. Indeed, despite those favourable cyclical conditions which prevailed until recently, the more general pressure on bank profitability still exists, given that the overall net interest margin has continued to decrease over recent years and that costs are reduced at a rather slow pace. EMU and banking activities A large number of EU banks of various sizes were analysed in mid-1997, in order to investigate banks own assessment of the medium to long-term effects of EMU on the different banking activities. Bankers were also of the opinion that EMU would mainly reinforce the existing trends in the banking industry. A majority of banks expected their overall profitability to be negatively affected after the introduction of the Euro, but the size of the profitability loss was usually considered relatively small. The establishment of EMU is expected to affect the various activities undertaken by banks in different ways. Banks regarded the reduction in foreign exchange activity of currencies replaced by the Euro as the main negative consequence of EMU. However, banks are likely to increase their money and especially securities market activities to even out lower revenues from foreign exchange trading. The introduction of the Euro and the single monetary policy will favour the setting-up of deep and liquid integrated money and capital markets that will, in turn, generate growth, but also trigger further competition in this area. The reduction of government debt owing to fiscal consolidation under EMU is likely to boost the spreading of other securities and, possibly, the securities activities of banks. Retail deposit business might be affected to the extent that the establishment of a low interest rate environment would induce customers to seek alternative investments to deposits. Lending business might be favoured by the positive macroeconomic environment brought about by EMU, but the expected further securitisation and disintermediation might operate in the reverse direction. Correspondent banking services are likely to decrease owing to the centralisation of treasury functions at large banks. All in all, the final result on banking activities will depend on the interaction among all the above factors that is difficult to predict. EMU and banking structure EMU is expected to reinforce the current tendency in the EU banking systems towards a reduction of banking capacity. Notwithstanding the measurement problems for bank capacity, there are good reasons to assume that excess capacity exists in several Member States. This can be regarded as the result of imperfect competition and/or regulation in the past. There has already been a reduction in capacity in many countries over the past few years. However, EMU is expected to exert, through increased competition, further pressure towards the reduction of excess capacity, in particular, the branch network and staffing levels. Table 2 Banks in EU Number of Institutions and Size Concentration Number of insti-tutions 1990Number of insti-tutions 1995Top 5, % share in total assetsTop 5, % share in total assetsBelgium 129 1505859Finland 498 3526574France 786 5935247Germany41803487-17Italy1067 9412429Netherlands 180 1747781Spain 327 3183849Sweden 498 1127086United Kingdom 665 5605857 Source: British Bankers Association, national data, OECD EMU is also likely to speed up the process of disintermediation (reducing the share of banks in the borrowing or saving activities within an economy) which is already under way in the EU banking systems. Over the past few years, the relative importance of credit institutions has decreased in the majority of Member States in favour of institutional investors (investment funds, insurance companies and pension funds), although this took place in a context within which financial assets (including assets of credit institutions) increased in general at a considerably higher pace than GDP. Among the institutional investors, investment funds recorded the highest rate of growth. However, in many Member States, more than 80% of undertakings for collective investments in transferable securities (UCITS) are controlled by banks. Institutional investors are expected to continue to grow mainly owing to demographic and social changes. In terms of the relative importance of the different financial instruments, disintermediation is still at an early stage (e.g. with regard to the use of commercial paper or private bonds instead of bank credit) and it is difficult to foresee the possible effects of EMU. EMU and banks strategies The establishment of EMU will create a more competitive environment and put further pressure on banks profitability. In view of these challenges, the EU banking systems have already adopted or are in the process of devising appropriate strategic responses. Current developments show that banks are devising strategic responses in three main directions: a) improvements in services and procedures (concerning the quality of services, staff, etc.; risk management and internal control systems, cost cutting and efficiency improvements); b) changes in product ranges (shift from operating services to consulting; reconsideration of product ranges, development of alternative sources of income, e.g. through geographical expansion); and c) mergers, strategic alliances and co-operation agreements. These are undertaken for a variety of reasons, including cost and efficiency improvements (economies of scale and scope), product diversification, new distribution channels (electronic banking) and geographical expansion. (ECB, 1999) Further internationalisation of the EU banking systems can be expected to occur under EMU. The level of internationalisation of most EU banking systems is currently relatively low. The EU countries (with the exception of IE, LU, and UK) report, in fact, a domestic market share of branches and subsidiaries from foreign countries (EEA and third countries) below 11%. This situation may at least partly be caused by still existing legal, fiscal and institutional obstacles. Regarding geographical diversification in bank lending, the EU banking systems seem to have adopted an important, if not leading, role as international lender in comparison with other banking systems. This may partly be explained by increased diversification efforts in view of EMU, but can also be seen as a sign of excess capacity and liquid funds, market saturation and/or lower growth rates within the EU, and lower returns on investment within the EU than elsewhere. With regard to mergers and acquisitions (M&As), it may be difficult to assess the extent to which these activities are triggered by EMU since a similar activity can be observed in three markets (e.g. the United States, Canada and Japan). The current wave of M&as taking place in the EU banking systems seems to indicate at least that many credit institutions are reconsidering their strategies also in light of EMU. Two main types of mergers are observed at the EU level. First, strategic mergers, involving at least one large layer, aimed at repositioning in the EMU markets and, second, mergers to mop up excess capacities, notably in the sector of smaller banks. In the latter case, the consolidation process took place mainly in order to reduce excess capacity in the local retail bank area, to consolidate central functions and to resolve solvency problems resulting from bad debts. 3. Financial institutions in EU In the light of bank disintermediation the most important question is, if financial institutions will take the chance and take advantage of this opportunity. Because introduction of the Euro will lead to the creation of a less segmented and more liquid securities market, that will induce the development of financial intermediation based on direct access to securities markets, i.e. the Anglo-Saxon model of finance which is predominant in international financial markets, too. If the role of banks as intermediaries reduces, investment funds, pension funds and insurance companies could get a larger market share in all segments of financial markets. (Henderson, 1993, p.28) European Investment funds and insurance companies have been subject to a significant number of directives in passed years, but only recently a movement towards the establishment of a single investment fund and insurance market is evident. Croatian central bank Croatian National Bank (CNB), originally called National Bank of Croatia was founded in 1991, is responsible for the stability of the domestic currency and for the general liquidity of payments in Croatia and abroad. The CNB as the Central Bank shall independently establish the objectives of monetary and foreign exchange policy, as well as then measures to realise the established tasks of monetary and foreign exchange policy. Tasks of CNB The objectives or tasks of CNBs monetary and foreign exchange policy are, as follows: a) to regulate money supply, b) to regulate general liquidity of banks and other financial institutions, c) maintain general liquidity of payments abroad, d) to issue banknotes and coins, e) to supervise banks and other financial organisations, f) to establish, organise and adjust the information system, required for its normal functioning, g) to perform certain operations for the Republic of Croatia, h) to perform other activities determined by law. The management of CNB is carried out by the Board of the Central Bank and the Governor. The Board is composed of the Governor of CNB, his deputy, three vice-governors and six members. The members of the Board are appointed from among independent experts to a term of six years and removed from office by the Parliament of the Republic of Croatia. Comparing the tasks of ECB and CNB it can be pointed out that the objectives of monetary policy of CNB are determined more specifically, there are more tasks to fulfil. That is due to the fact, that this part of the new law on the Central bank of Croatia is very similar to stipulations of the old law of ex Yugoslavia, but with one very important difference, in the case of CNB it is clearly pointed out that the Central Bank is an independent institution. On the other hand, in the case of Croatia which is a country in transition, it could be favourable for the central bank to have more means and measures at its disposal to perform efficient monetary policy. It is also important to point out that at the time of founding a new Central Bank in Croatia, on 23 December 1991, Croatia took a step forwards establishing monetary policy by introducing its own currency, at first a temporary one (Croatian dinar), which was later transformed in the definite currency (Kuna). (kreb, 1998, p.5) The introducing of the new Central Bank and the currency proceeded successfully, despite the fact that Croatia was in war and that there was no real control over large parts of the country. 5. Banking sector in Croatia The Financial system in Croatia in general is rather underdeveloped if compared to other financial systems of market economies. Money and capital markets have no significant breadth and depth. At the end of 1997, total liquidity measured by M4 was some 45% of GDP, and commercial banks balance sheets amounted to 75% of GDP. The banking sector, i.e. commercial banks are the most important players in the Croatian financial market dominating in almost all segments. The Croatian banking sector is also very concentrated, the five largest banks hold 58% of total assets, which indicates a high degree of oligopolistic behaviour. (See Kraft and George, 1997). Beside the concentration, also the number of banks grew constantly during the last few years. It 1993, there were 43 commercial banks and no saving banks, in 1995 there were 53 commercial banks and even 21 savings banks, and at least in 1997 the number of commercial banks grew to 60 and savings banks to 33. (See Table 3) The reason for this increasing number of banks lies in the interest spread between passive and active interest rates which is compared to other market economies very high in Croatia. (Banka, 1998, pp. 22-23) Table 3 Number of Commercial Banks and Savings Banks in Croatia Number of commercial banksNumber of savings banks19934301995532119976033 Source: Croatian National Bank (CNB), Annual Report, 1997 Nevertheless the profitability of Croatian banks is poor, due to the fact that the commercial banks are overstaffed and not efficient enough in cost reduction. (See Table 4) A lot of banks, not only large banks but also small banks, have a wide network of branches, so because of less savings and deposits on one side, and the fact that the banks have granted a lot of bad loans on the other side of their balance sheet, the result is poor profitability and in some cases of middle-sized banks even significant losses. Taken all together the bank rehabilitation in Croatia started some time ago, needs to be successfully completed in time to prevent a real bank crisis. This problem is reinforced by the fact that a severe illiquidity crisis in Croatian economy (the business sector) is definitely evident now. About the Croatian bank rehabilitation see more in (`onje, 1996), (Babi, 1997) and (Potter , 1999). Table 4 Profitability of Top 20 Commercial Banks in Croatia in 1997 ROA (Return on assets)Net interest spreadKarlova ka0.21 %2.85 %HGB0.17 %2.19 %Cibalae2.12 %5.68 %Sisa ka1.10 %8.31 %Agroobrtni ka0.47 %5.16 %Trgova ka2.23 %4.67 %Podravska1.39 %8.63 %Kreditna1.39 %4.42 %Partner2.29 %6.10 %Alpe Jadran1.88 %3.22 %Zagreba ka1.33 %3.85 %Privredna0.20 %2.78 %Splitska1.24 %2.88 %Dalmatinska1.08 %5.35 %Slavonska1.37 %5.80 %Vara~dinska1.84 %4.95 %HPB0.45 %6.20 %Istarska0.42 %3.23 %Gradska0.44 %5.29 %Jadranska2.06 %4.21 % Source: Banka, No.23, November-December, 1998, pp.22-23; revised financial reports 6. Financial institutions in Croatia Although the banking the banking sector is dominant in the Croatian financial market other financial institutions are existing and are developing their business activities. There are some twenty domestic and joint-business venture insurance companies present in Croatia, but most of them are small and are specialised only in one or two segments of the business, like the the car or life insurance. Because of finished voucher privatisation in Croatia, the so-called mini-mass privatisation (Prohaska and Vehovec, 1998), seven privatisation investment funds (PIFs) are present. Five funds are domestic, founded by Croatian commercial banks, brokerage houses or insurance companies, one is from abroad and one is a joint-venture between an Austrian internationally well known investment corporation and a leading Croatian brokerage house. Regarding the presence of mutual funds it is necessary to point out, that there are only two investment funds active in Croatia. One is a domestic fund, established by a Croatian commercial bank, the other is a joint venture between Canadian, Slovenian and Croatian partners. The reason for the small number of financial institutions other than banks present and active in Croatia is among others, the Crisis in Asian and Russian financial markets which induced a general withdrawing of financial assets of international portfolio investors from emerging markets. Although Croatia has a satisfactory investment grade (BBB-), it is obvious that a noteworthy dose of country risk is present and that brought to a general fall of share prices on the Zagreb Stock Exchange. 7. EMU and Croatian Financial System On one side, although not being part of the five transition countries in Central and Eastern Europe, i.e. Slovenia, Poland, Hungary, The Czech Republic and Estonia, which were invited to join the European Union in the next round of expansion, Croatia does or did already meet several of the four conditions stipulated in the Maastricht Treaty for EU member countries to join EMU. On the other side, the last six-month Croatian banking sector is in severe trouble. Bank rehabilitation has shown first results, but several small- and medium-sized banks are insolvent or bankrupt and are to be closed. However, since a new banking law was passed last year in December, giving the CNB more power to control and supervise the banking sector, it is expected that the bank crisis will be stopped and the banking sector consolidated. In summary, that means the Croatian financial system is at the very moment in a phase of consolidation and rehabilitation and efforts in the form of accessing EU and later EMU are for the time being postponed. Nevertheless, there are constantly activities for preparing for EU, e.g. a new law on securities trading is being prepared, as are several other laws regarding investment funds, privatisation investment funds and other laws and regulations stipulated in the Directives of the EU. Conclusions It can be concluded that the introduction of Euro and EMU will act in the middle and long run like a catalyst to emphasise trends already present in the banking sector of EU member countries. It will reinforce the pressure for reduction of access capacity (branches and staff) and increase of profitability, what will lead to more internationalisation and geographical diversification, also outside the EU. The result will be increased conglomeration and mergers and acquisitions, as well as more overall competition in Euro area, but with different effect on wholesale and retail banking. In the long run this adjustment process should result in a stronger and more efficient banking sector in Europe, which will be more competitive to U.S. or Japanese banking systems. With regard to other financial institutions, e.g. investment funds, insurance companies and pension funds, it was found out that after the introduction of Euro, countries in EMU will face a more liberal and competitive insurance market, and the customers of investment funds (private and institutional) will also benefit from more competition after fund managers from abroad have penetrated the market. Although fulfilling several Maastricht criteria even for EMU approach, Croatian financial system is going through a tough phase of consolidation, where bank rehabilitation and more efficient supervision of banks and other financial institutions are the goals of CNBs and other relevant public institutions (CROSEC) policy. However, even in those circumstances and after severe damages caused by the war a few years ago, the financial sector in Croatia is developing constantly. At the moment there are about 60 banks, 33 savings banks, about 20 insurance companies and 7 investment funds present. It is expected that competition and legal requirements will diminish during the next years the number of banks and after the recovery of secondary financial markets the number of other financial intermediaries should increase to a level like in other countries in transition. R E F E R E N C E S Babi, M.,  Transition, Stabilization and Development War in Torn Croatia , Zagreb Journal of Economics, (Vol.1 No.1, 1997) Bilefsky, D., Hall, B., Barber, L., The Birth of the Euro: The Financial Times Guide to EMU. London: Penguin Books, 1998. Croatian National Bank, Annual Reports, 1995-1997 European Central Bank, Possible Effects of Emu on the EU Banking Systems in the Medium to Long Term, Frankfurt, February 1999 Henderson, G., European Finance. London: McGraw-Hill Book Company, 1993. Issing, O., The Monetary Policy of the Eurosystem, Finance and Development, March 1999 Kenen, P.B., Economic and Monetary Union in Europe, Moving Beyond Maastricht. Cambridge: Cambridge University Press, 1996 jkt D F ] ^ _ X Y g h 5v(?(O/P/Z/044P4; <>>ĹğğģĘzssjhk6CJh hkCJh hkhhkB*CJhphhk5B*CJhph hk5CJhkhk5>*CJh&vhkCJmHsHh&vhkmHsH hkCJh&vhkmHsHh&vhkCJmHsHh&vhk5CJmHsHh&vhk5>*CJmHsH)kst D E F ] ^ _  $a$  $ dha$$dha$Dik X Y g h 45qrstuv$dha$$a$$a$ c"d"## ( ((?(@(. .#/$/%/N/O/P/Z/d/n/$If $dh$Ifa$$dha$n/x/y//////Jkd$$Ifl   r< 4      t0  4 la $dh$Ifa$///////VJJJJJ $dh$Ifa$kd$$Ifl   r< 4  t0  4 la///////VJJJJJ $dh$Ifa$kd`$$Ifl   r< 4  t0  4 la///////VJJJJJ $dh$Ifa$kd$$Ifl   r< 4  t0  4 la//////0VJJJJJ $dh$Ifa$kd$$Ifl   r< 4  t0  4 la00 0 0000VJJJJJ $dh$Ifa$kdF$$Ifl   r< 4  t0  4 la00&0+00050:0VJJJJJ $dh$Ifa$kd$$Ifl   r< 4  t0  4 la:0;0A0F0K0P0U0VJJJJJ $dh$Ifa$kd$$Ifl   r< 4  t0  4 laU0V0]0b0g0m0r0VJJJJJ $dh$Ifa$kd,$$Ifl   r< 4  t0  4 lar0s000000VJJJJJ $dh$Ifa$kd$$Ifl   r< 4  t0  4 la000011T1U1V1VNNNNNNN$dha$kdp$$Ifl   r< 4  t0  4 laV13444P4Q4J6K6;;; <<>>>>>>>?"?A?$If $dh$Ifa$$dha$>?"?A?B?6@*EDEyPP3TJTUV%^C^5cjcciriDmm!n"nnttuvyyӅDEGHJKMNPQWXY[\bcdeflh&v0JmHnHu hk0Jjhk0JUjhkUUhkmH sH  hk5hk5B*CJhphhkB*CJhph hkCJhhk6CJhhk hk6h7A?B?J?P?V?Y?\?VJJJJJ $dh$Ifa$kd$$Ifl  r< 4  t0  4 la\?]?e?k?q?t?w?VJJJJJ $dh$Ifa$kd$$Ifl  r< 4  t0  4 law?x??????VJJJJJ $dh$Ifa$kd$$Ifl  r< 4  t0  4 la???????VJJJJJ $dh$Ifa$kdv $$Ifl  r< 4  t0  4 la???????VJJJJJ $dh$Ifa$kd4 $$Ifl  r< 4  t0  4 la???????VJJJJJ $dh$Ifa$kd $$Ifl  r< 4  t0  4 la???????VJJJJJ $dh$Ifa$kd $$Ifl  r< 4  t0  4 la??@@ @@@VJJJJJ $dh$Ifa$kdn $$Ifl  r< 4  t0  4 la@@#@)@/@2@5@VJJJJJ $dh$Ifa$kd, $$Ifl  r< 4  t0  4 la5@6@7@q@r@s@(E)E*EVNNNNNNN$dha$kd $$Ifl  r< 4  t0  4 la*EDEEEJIKI%K&KwPxPyPPPPASBS1T2T3TITJTUUVV%X&XY $ & Fdha$$dha$YY\\#^$^%^C^D^``bbbbbbbbb4c5c6cQcic $dh$Ifa$$dha$icjcocrctc|ppp $dh$Ifa$kd$$Ifl  F      t0      4 latcuczc}cc|ppp $dh$Ifa$kdd$$Ifl  F     t0      4 laccccc|ppp $dh$Ifa$kd.$$Ifl  F     t0      4 lacccccc|h~hhhhhhh|tttttttttttt$dha$kd$$Ifl  F     t0      4 la hhhiiHipiriiiihkd$$Ifl  F      t0      4 la $dh$Ifa$$dha$ iiiii|ppp $dh$Ifa$kdF$$Ifl  F     t0      4 laiiiii|ppp $dh$Ifa$kd$$Ifl  F     t0      4 laii jj&j|ppp $dh$Ifa$kd$$Ifl  F     t0      4 la&j(jDjRj`j|ppp $dh$Ifa$kdr$$Ifl  F     t0      4 la`jbjvjjj|ppp $dh$Ifa$kd $$Ifl  F     t0      4 lajjjjj|ppp $dh$Ifa$kd$$Ifl  F     t0      4 lajjjjj|ppp $dh$Ifa$kd|$$Ifl  F     t0      4 lajjkk"k|ppp $dh$Ifa$kd*$$Ifl  F     t0      4 la"k$k$$Ifl  F     t0      4 laVlXlpl~ll|ppp $dh$Ifa$kd$$Ifl  F     t0      4 lalllll|ppp $dh$Ifa$kd$$Ifl  F     t0      4 lalllll|ppp $dh$Ifa$kdH$$Ifl  F     t0      4 lalllmm|ppp $dh$Ifa$kd$$Ifl  F     t0      4 lamm&m4mBm|ppp $dh$Ifa$kd$$Ifl  F     t0      4 laBmDmFmmmmm!n"niqjqltmt|tttttrtpppp$dha$kdR$$Ifl  F     t0      4 la mtntttvvwwyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy3|4|||~~ /0d`WX҅ӅvwFG#$ ABCDFGIJLdKraft. E., George, J., The Structure of the Banking System in Croatia, Surveys, Croatian National Bank, June, 1997 Pitchford, R., Cox, A., Emu Explained, Markets and Monetary Union. London: Kogan Page, 1997 Potter, B., Damage Control, Croatias Central Bank Flexes its New Muscles, Business Central Europe, April 1999 Prohaska, Z., Vehovec, M, Experiences of A Mass Privatisation Programme in Croatia, in Montanheiro, L. et al., Public and Private Sector Partnerships: Fostering Enterprise. Sheffield: Sheffield Hallam University, 1998 kreb, M., Economic Transition in Croatia: An Insiders View, Surveys, Croatian National Bank, June 1998 onje, V., Capital Markets Developments in Croatia, draft for Survey edition, Croatian National Bank, December 1996 Xxx, Croatia, on a Tight Rein, The Banker, April 1999     PAGE  PAGE 2 LMOPYZ[fghijkl&`#$ + 0. A!"#$% $$If!vh55555#v:V l t0  5/ 4$$If!vh55555#v:V l t0  5/ 4$$If!vh55555#v:V l t0  54$$If!vh55555#v:V l t0  54$$If!vh55555#v:V l t0  54$$If!vh55555#v:V l t0  54$$If!vh55555#v:V l t0  54$$If!vh55555#v:V l t0  54$$If!vh55555#v:V l t0  54$$If!vh55555#v:V l t0  54$$If!vh55555#v:V l t0  54$$If!vh55555#v:V l t0  5/  / / 4$$If!vh55555#v:V l t0  5/ / / / 4$$If!vh55555#v:V l t0  5/ / 4$$If!vh55555#v:V l t0  5/ / 4$$If!vh55555#v:V l t0  5/ / 4$$If!vh55555#v:V l t0  5/ / 4$$If!vh55555#v:V l t0  5/ / 4$$If!vh55555#v:V l t0  5/ / 4$$If!vh55555#v:V l t0  5/ / 4$$If!vh55555#v:V l t0  5/ / 4$$If!vh5 5 5 #v :V l t0  5 /  / / 4$$If!vh5 5 5 #v :V l t0  5 / / / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 /  / / 4$$If!vh5 5 5 #v :V l t0  ,5 / / / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 4$$If!vh5 5 5 #v :V l t0  5 / / 48@8 Normal_HmH sH tH T@T Heading 1$$dh@&a$5B*CJhtH uH@H Heading 2$$dh@&a$CJhF@F Heading 3$$dh@&a$6hDA@D Default Paragraph FontVi@V  Table Normal :V 44 la (k@(No List NB@N Body Text$dha$5B*CJhtH uLP@L Body Text 2$dha$CJhtH uHQ@H Body Text 3$dha$ B*CJh4 @"4 Footer  9r .)@1. Page Number[|[|kst  DEF]^_XYgh45  qrstuvcd  ? @ & &#'$'%'N'O'P'Z'd'n'x'y'''''''''''''''''''''''''''''(( ( (((((&(+(0(5(:(;(A(F(K(P(U(V(](b(g(m(r(s((((((((())T)U)V)3,4,P,Q,J.K.333 4466666667"7A7B7J7P7V7Y7\7]7e7k7q7t7w7x777777777777777777777777777777788 8888#8)8/828586878q8r8s8(=)=*=D=E=JAKA%C&CwHxHyHHHHAKBK1L2L3LILJLMMNN%P&PQQTT#V$V%VCVDVXXZZZZZZZZZ4[5[6[Q[i[j[o[r[t[u[z[}[[[[[[[[[[[Z_[_\_]_^___`_a_b_c____________`` ````!`(`/`0`>`E`L`M`W`^`e`f`p`w`~``````````````````````a aaa a'a.a/a9a@aGaHaTa[abacaganauavaaaaaaaaaaaaaabbbb=b>beehhhhh.j/jkkmmmmmmmmmmmmmmmmmmmmmmmmmmmnnOpPpqqrrvv vvvv v!vvvwwKwLwwwxxsxtxxxeyfyyy5z6z{{{{{{0|1|2|3|5|6|8|9|;|<|>|?|H|I|J|U|V|W|X|Y|\|00000t0t0000000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0000000000000000v0v0v0v0v0v0v0v0v0v0v0v0v00 0 0 0 0 0 0 0 0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0  0 0 0 0 0 0 0 0 0 004,04,04,04,04,04,003030303030303 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 0303030303030300*=0*=0*=0*=0*=0*=0*=0*=00yH0yH0yH0yH0yH0yH0yH 0yH000000000000000000000000000000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0000000000000000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000@0@00000 $$$'>lCT n/////00:0U0r00V1A?\?w??????@5@*EYictccchiii&j`jjjj"kXkkkk$lVllllmBmmtyLlDFGHIJKLMNOPQRSUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|kE  '!!l,b$_㔸a$@0(  B S  ?[|= ʖ=<=T=d9==LM=T=[==E==S=44===䳷=D=}"=L̹=ِ=l=\=씿=,=ܑ=T=ۏ=1=\U=j==g=L=J>>$P>왕> >ܫ>>N>tٖ >\u > >D1 >d@ >O>>$>s>T>l`>>tʕ>ܣ>Ԙ>>>t>>|ڹ% E N W ` h q z ###F'y'y'''''''''((((;(;(V(V(s(s(N)N)B7B7]7]7x7x77777777777884B4BEEEELMMlQlQxQyRRRnSnSUU;V;V\V\VZZ,[,[]]__a5b5bcceeffggppZtZtcvmvmvvvwwwwwxxxxxx.y.yyyyyyyzzzzzz{6{6{{{{{\|      !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIKJLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{}|~/ L U ^ f o x  *##L''''''''''' ( (%(%(@(@(\(\(((S)S)I7I7d7d7~7~77777777788"8"86B6BEEEELMMtQQQRRRuSuSUUBVBVcVcVZZ3[3[^^__a?@ABCDEFGHIKJLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{}|~B*urn:schemas-microsoft-com:office:smarttagscountry-region8*urn:schemas-microsoft-com:office:smarttagsCity=*urn:schemas-microsoft-com:office:smarttags PlaceName=*urn:schemas-microsoft-com:office:smarttags PlaceType9*urn:schemas-microsoft-com:office:smarttagsplace |[FYZfhkv{|~  s8v8w8y8*=-=.=1=EEEEEEFFyHzHHHHH3L;LbFbGbJbKbRbhhhhhhmmnnppppppppuuuuuu v v v vvvvvvv xxxxx xBxLxtxyxfyoyyyDzKzzz{{{{{{{{{{| | | | |||||||#|2|3|3|5|5|6|6|8|9|;|<|>|?|G|J|T|\| CF bp F V 7 7)E+EWWBXOXXXZZJ_R_bbbbDfIfvvwwxxWy^y'z/z`zazQ{[{{{||3|3|5|5|6|6|8|9|;|<|>|?|W|X|\|3333333333333333333333333%'(67B778yH}HH3LJL%V)VDV6[[_abb>bhhh3|3|5|5|6|6|8|9|;|<|>|?|J|T|\|3|3|5|5|6|6|8|9|;|<|>|?|W|X|\|^j # q<@ hjG 7Jw((Ik hh^h`o(.hh^h`o(.hh^h`o(.hh^h`o(.0^`0o(.hh^h`o(.q<@7J#hjG(Ik^j&vkN'O'P'Z'd'n'x'y'''''''''''''''''''''''''''''(( ( (((((&(+(0(5(:(;(A(F(K(P(U(V(](b(g(m(r(s(((((((3666667"7A7B7J7P7V7Y7\7]7e7k7q7t7w7x777777777777777777777777777777788 8888#8)8/8285868ZZ4[5[6[Q[i[j[o[r[t[u[z[}[[[[[[[c____________`` ````!`(`/`0`>`E`L`M`W`^`e`f`p`w`~``````````````````````a aaa a'a.a/a9a@aGaHaTa[abacaganauavaaaaaaaaaaaaaz2|3|5|8|;|>|W|X|\|}0W'_%v0@4X_abvwx[|P@PhPlP@PP@P@UnknownGz Times New Roman5Symbol3& z Arial"1h r r4fi?i?!4d{{2HP ?&v2)47 Finance & Development / September 1997Zdenko ProhaskaZdenko$      Oh+'0$ 4@ ` l x ,47 Finance & Development / September 1997Zdenko Prohaska Normal.dotZdenko2Microsoft Office Word@F#@k@:IV@:IVi՜.+,0 hp|  -?{' *47 Finance & Development / September 1997 Title  !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~Root Entry F.RaVData  1TableuWordDocument-SummaryInformation(DocumentSummaryInformation8CompObjq  FMicrosoft Office Word Document MSWordDocWord.Document.89q