ECB announced that it will comprehensively assess financial soundness of five Croatian banks: Zagrebačka banka, Privredna banka Zagreb, Erste & Steiermärkische Bank, OTP banka Hrvatska, and Hrvatska poštanska banka. The exercise will comprise an asset quality review (AQR) and a stress test. This assessment is the result of submission of a request by Croatia in May 2019, under which Croatia seeks to establish close cooperation between ECB and Hrvatska narodna banka. The exercise is expected to start in September 2019, with the results due to be finalized in May 2020. ECB also published the frequently asked questions about the request of Croatia to establish close cooperation with ECB.
Banks will be assessed on the basis of data as at June 30, 2019. A comprehensive assessment is required as part of the process of establishing close cooperation between ECB and the national competent authority of an EU member state whose currency is not the euro. The general objectives of every comprehensive assessment conducted by ECB are to assess whether banks are fundamentally sound, enhance the quality of information available on the condition of banks, and identify problems and implement the necessary corrective actions. The AQR and the stress test will be based on the methodologies applied by ECB Banking Supervision in its regular comprehensive assessments of credit institutions that have recently been classified as significant or could potentially become significant. The AQR will be performed using the updated AQR methodology, which ECB had published in June 2018 and which considers the impact of IFRS 9.
The five banks have been chosen to ensure a level of coverage that is consistent with Article 6(4) of the Single Supervisory Mechanism (SSM) Regulation and is broadly comparable with the previous comprehensive assessments conducted by ECB since 2014. Institutions are selected on the basis of their size, risk profile, and overall significance for the national economy and this involves taking account of several elements such as the business model of the institution, its internal governance and risk management, its capital risk, its liquidity and funding risk, and its interconnectedness with the rest of the financial system. ECB will also assess the relevant Croatian legislation, ensuring that Hrvatska narodna banka will be obliged to adopt all measures requested by ECB in relation to Croatian credit institutions. ECB Banking Supervision is working closely with Hrvatska narodna banka in view of its potential future role as a national competent authority within SSM. The steps that are being taken in this regard are in line with the process that was recently followed for Bulgaria.
Keywords: Europe, EU, Croatia, Banking, Comprehensive Assessment, Asset Quality Review, Stress Testing, IFRS 9, Hrvatsa Narodna Banka, SSM, ECB
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