The Council of the Croatian National Bank, chaired by governor dr. Marko Skreb, met on Wednesday April 8, 1998 to examine economic and financial developments in the country, discuss the situation in Dubrovacka banka and review all the activities performed by the Supervision Department of the CNB. The Council was also briefed on results of the discussions with the IMF-mission that recently visited Croatia. Mr. Borislav Skegro, vice-president of the Croatian Government, and Mr. Djuro Njavro, president of the Parliamentary Committee for Budget and Finances also attended the meeting.

At the Wednesday meeting, the Council reached several decisions aimed at reducing excessive credit expansion of commercial banks. In 1997, total lending of commercial banks grew by 14.7 billion kuna and was 44 percent higher than in 1996. Instead of slowing down, as it was expected, the above trend continued during January, February and the first twenty days of March: total lending of commercial banks grew by additional 3.1 billion kuna, that is by 6.4 percent compared to the amount recorded at the end of 1997. Available indicators confirmed that the main source of this lending activity was the growth of foreign exchange liabilities (increase in the amount of loans taken from foreign banks or received foreign exchange deposits), accompanied by a decrease in foreign exchange assets.

Since monetary policy measures introduced so far proved to be inadequate for reducing such unfavorable developments, the Council concluded that more radical measures have to be put through. Accordingly, when taking abroad new loans earmarked for conversion in kuna, for their own account or for the account of an other resident legal person, commercial banks authorized for conducting external operations will have to deposit with the Croatian National Bank 30 percent of the amount of short-term loans with maturity up to one year, and 5 percent of the amount of loans with longer maturity periods. The above amounts will be deposited in kuna. Further, when issuing guarantees for loans earmarked for conversion in kuna, banks will have to deposit 10 percent of the value of a particular guarantee. Finally, when receiving foreign exchange deposits of foreign banks, Croatian commercial banks will have to deposit (in kuna countervalue) a percentage of the total amount of received deposits on a special account with the Croatian National Bank: from April 13th till April 19th - 5 percent, till June 7th - 10 percent, and afterwards 15 percent of the abovementioned amount.