Since with respect to the investigation procedures conducted by the Austrian and German authorities concerning the operation of the Hypo Alpe Adria International AG banking group from Klagenfurt and its acquisition by the German Bayerische Landesbank (BLB), Munich, questions have again arisen in public, by both domestic and foreign media, as to the role and actions of the Croatian National Bank (CNB) regarding the status and operation of their subsidiaries in Croatia, we hold it necessary to remind the public that clear and unambiguous answers to such questions were publicly disclosed immediately after the relevant decisions of the Croatian central bank had been reached. At this point there is nothing relevant or new to be added.

Accordingly, although these answers are constantly available to anyone interested, in both Croatian and English languages, on the CNB web site www.hnb.hr, it seems necessary to repeat literally several CNB press releases where the following was disclosed concerning the stated issue:


11 July 2007
BLB WITHOUT APPROVALS FOR HAAB AND SLAVONSKA BANKA

At its session today, chaired by Governor Dr Željko Rohatinski and attended by Minister of Finance Ivan Šuker, the Council of the Croatian National Bank reviewed recent economic and monetary developments, and adopted the monetary policy projection for the third quarter of 2007. Also considered at the today's session was the application of the German Bayerische Landesbank, Munich (BLB) for an indirect acquisition of a holding exceeding 50 percent in the share capital of Hypo Alpe-Adria-Bank d.d., Zagreb (HAAB) and of Slavonska banka d.d., Osijek, as well as the application of Berlin & Co. Capital S.a.r.l., Luxembourg for the acquisition of a holding exceeding 20 percent in each of the stated banks.
The CNB Council failed to reach a decision by the required two-third majority to either refuse or grant authorisation for the second entry - this time indirect - of BLB as owner into the Croatian banking system. In such circumstances the Governor is empowered to make a final decision. After seeing the outcome of the Council's vote, the Governor notified the Council members that he would adopt a decision to refuse the application for the said approval, even after taking account of all political and other arguments in favour of the application.
Due to its ties with BLB, approval has also not been granted to Berlin & Co Capital S.a.r.l., Luxembourg, which has been established this year and also wishes to acquire qualifying holdings in HAAB and Slavonska banka.


11 July 2007
Public statement by Croatian National Bank Governor, Dr Željko Rohatinski, on the decision to refuse the application for approval to Bayerische Landesbank (BLB) for its re-entry into the Croatian banking system

Decision-taking by the Croatian National Bank on the granting or refusing prior approval to BLB for an indirect acquisition of a qualifying holding in HAAB d.d., Zagreb and Slavonska banka d.d., Osijek was a sensitive issue because of its possible interpretation in the broader context of economic and political relations between Croatia and individual EU Member States, and particularly in the context of Croatia's further EU accession negotiations.

With that in mind, two aspects of this issue have been considered:
From the point of view of the "rules of the profession", the fact that the potential acquirer is a German bank of high international rating is irrelevant and so is the fact that the Austrian parent bank of both mentioned Croatian banks is trying to use this acquisition to solve some problems in its business operations. The most important criteria in evaluating the fitness and properness of the potential acquirer was the evaluation of BLB's previous business operations in Croatia as a former majority owner of Riječka banka. In that context, it was established that this bank's behaviour at the time of crisis in Riječka banka was far from the professional level that might be expected of a bank of such good reputation as is that of BLB (the crisis emerged as a result of failure of key control mechanisms in the bank, the owner abandoned the bank at the most critical moment, reconciling with the loss of capital invested and leaving to the Croatian Government and the CNB to deal with the run on the bank and prevent any domino effects, and their possible catastrophic repercussions). In the light of that, BLB was expected to provide firm guarantees that no similar scenario would happen in a hypothetic case of some future crisis. These guarantees, however, failed to materialise.

From the point of view of "political and economic reality", very important in the consideration of this issue were: the fact that BLB is a very respectable German bank in state ownership, the support that Germany has provided and continues to provide to Croatia on its path towards the EU, and the significance that economic relations with Germany have for our country. These considerations, the previous negative experience with the operations of BLB in Croatia aside, present arguments in favour of giving this bank an opportunity to begin anew its business operations in the Croatian market.
The CNB Council at its session held on 11 July considered both of these aspects and was unable to reach a final decision by the required majority vote. In such a situation, judging that any postponement in reaching a decision would only be detrimental to both BLB and the CNB, pursuant to powers referred to in Article 39, item 4 of the Croatian National Bank Act, I have reached a decision refusing the application of BLB for an indirect acquisition of qualifying holdings in HAAB d.d., Zagreb and in Slavonska banka.

I am fully aware of the weight of this decision and my personal responsibility, but I am also deeply convinced that it is the right decision.


12 September 2007
BLB RECEIVED APPROVALS FOR HAAB AND SLAVONSKA BANKA

At its session today, chaired by the Governor, Dr Željko Rohatinski, the Croatian National Bank Council reviewed and accepted a new application from Bayerische Landesbank, Munich (BLB) requesting approval from the central bank to indirectly acquire an equity holding greater than 50 percent in Hypo Alpe-Adria-Bank d.d., Zagreb (HAAB) and Slavonska banka d.d., Osijek. The approval was granted since in the new application, submitted to the CNB on 28 August 2007, BLB accepted all the conditions that the CNB imposed after having refused the first application in July.
With the purchase of Hypo Alpe-Adria-Bank International AG, Klagenfurt, BLB had indirectly acquired equity holdings in all its subsidiaries, including the two banks in Croatia. To effect a change in ownership in these two banks, BLB had to receive approval from the Croatian central bank. Due to the negative experience with BLB as the former owner of Riječka banka d.d., Rijeka, and due to the fact that BLB's first application for approval, filed in May 2007, contained no firm assurances that this would not be repeated in a similar situation, the CNB refused this application on 11 July 2007.
As BLB still remained interested in entering the Croatian market, the CNB imposed minimum requirements to be met by BLB prior to submitting a new application. These included providing an explanation of the reasons for abandoning the troubled Riječka banka and issuing a public apology to the bank's depositors; conducting due diligence in both newly acquired banks in Croatia; estimating their contingent losses and infusing additional capital to provide full coverage for such losses, as well as achieving and maintaining an appropriate capital adequacy ratio, improving the risk management and control system and promptly implementing CNB guidelines on money laundering and terrorism financing prevention.
BLB accepted all the requirements, which, in light of due diligence findings, proved to be warranted. Accordingly, this year HAAB will be recapitalised with a total of EUR 250m (of which EUR 150m has already been provided) and Slavonska banka with EUR 100m (with EUR 30m already provided). The capital adequacy ratio will thus be raised to its mid-2005 level and will have to be maintained at this level for at least one year; i.e. at 18.6 percent for HAAB and at 22.6 percent for Slavonska banka. In this way BLB will be much more involved in improving the conditions and resolving the problems in the two banks than it was anticipated in its first application for approval.
Having performed due diligence, BLB found it necessary to revise the risk management and control systems in both banks and bring them immediately into compliance with the standards of the BLB banking group. BLB's recent streamlining of its operations and risk management procedures, and the fact that the regulations applied by the bank are fully harmonised with EU requirements, have provided additional grounds for expecting an improvement of the conditions at the two banks in Croatia and greater stability of their business operations. Having considered all these facts and having taken account of the German bankers' professional cooperation during the preparation of the new application for approval, the central bank decided to accept this application and grant approval to BLB to re-enter the Croatian market despite its unacceptable conduct in the Riječka banka crisis in early 2002. Such a decision was made in the belief that the lessons learned from the past experiences and events would prove useful not only for BLB and its subsidiaries but for the Croatian banking system as a whole.
Also accepted at this session was the application of an affiliated company Berlin & Co Capital S.á.r.l., Luxembourg to indirectly acquire a majority holding exceeding 20 percent in the said two banks in Croatia.