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20 October 2020
Seven years after its accession to the European Union, Croatia has entered the last stage of preparation to adopt the euro. The European Central Bank (ECB) recently announced a list of eight Croatian banks which will be under its direct supervision following the country's admission to the exchange rate mechanism (ERM II) and the banking union.
Croatia was admitted to ERM II on 10 July 2020 by mutual agreement of the finance ministers of the eurozone member states, the president of the ECB and the finance ministers and central bank governors of Denmark and Croatia. The central rate of the Croatian kuna is set at HRK7.53450 per €1 (the reference rate on the day of admittance), with the standard fluctuation band of plus or minus 15%.
On 1 October 2020 the ECB took over the supervision of Croatian banks, either directly or via the Croatian National Bank (CNB). Following the ECB's assessment, eight banks operating on the Croatian market were deemed 'significant' and will thus be directly supervised by the ECB, with the Single Resolution Board (SRB) acting as their resolution authority. Seven selected banks are subsidiaries of existing significant banking groups with headquarters in Italy, Austria and Russia, while one is the subsidiary of Austrian group Addiko Bank AG, which recently came under the ECB's supervision. The selection fulfils the ECB's regulatory requirements, which is to directly supervise:
The remaining credit institutions on the Croatian market continue to be supervised by the national banking authority in close cooperation with the ECB, while the SRB will oversee their resolution planning.
Croatia's admittance to ERM II was preceded by its letter of intent of July 2019, which defined several supervisory and legislative prerequisites that Croatian authorities needed to meet in order to participate smoothly in ERM II. The measures pertained to the following policy areas:
Among other things, Croatia committed to broaden the macro-prudential framework by providing a legal basis for borrower-based measures. This condition was fulfilled in April 2020 when Parliament adopted amendments to the Credit Institutions Act (Official Gazette 159/2013, 19/2015, 102/2015, 15/2018, 70/2019 and 47/2020) and the Croatian National Bank Act (Official Gazette 75/2008, 54/2013 and 47/2020). The amendments explicitly empower the CNB to impose borrower-based measures – namely:
Croatia's implementation of the above measures received a positive assessment by the ECB and the European Commission one year after the country's commitment, thus fulfilling the conditions for admittance to ERM II.
During this preparatory period, further institutional reforms can be expected. Croatia has undertaken additional voluntary policy commitments aimed at ensuring sustainable economic convergence by the time that it adopts the euro. Additional efforts are to be invested in:
Since Croatia entered both the banking union and ERM II simultaneously, adopting the euro may be possible in 2023 provided that it complies with all treaty-based convergence criteria.
For further information on this topic please contact Anita Krizmanić or Ivana Manovelo at Maćešić & Partners by telephone (+385 51 215 010) or email (firstname.lastname@example.org or email@example.com). The Maćešić & Partners website can be accessed at www.macesic.hr.
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