Pursuant to Article 101, paragraph (2), item (8) and Article 154, paragraph (9) of the
Credit Institutions Act (Official Gazette 159/2013 and 19/2015) and Article 43,
paragraph (2), item (9) of the Act on the Croatian National Bank (Official Gazette
75/2008 and 54/2013), the Governor of the Croatian National Bank hereby issues the
Decision
on amendments to the Decision on recovery plans of credit institutions
Article 1
In the Decision on recovery plans of credit institutions (Official Gazette 78/2014), in
Article 2, item (2), the words "Member States" are replaced by the word "countries".
Item (6) is amended to read:
"6) early warning signals" are benchmarks which constitute a part of the internal risk
management procedure of a credit institution or a group of credit institutions and which
are used for monitoring its financial situation;"
In item (7), indent (e), the words "Member State" are replaced by the word "country".
Article 2
Article 3 is amended to read:
"(1) A recovery plan determining the measures for improving the financial position in
situations of a severe financial distress shall be drawn up and submitted to the Croatian
National Bank by:
1) a credit institution which is not a part of a group of credit institutions in the EU or in
the Republic of Croatia, on an individual basis;
2) a parent credit institution in the EU with a head office in the Republic of Croatia or a
credit institution referred to in Article 97, paragraph (2) of the Credit Institutions Act
(Official Gazette 159/2013 and 19/2015), for their group of credit institutions in the
Republic of Croatia on a consolidated basis;
3) a credit institution which is a member of a group of credit institutions in the EU, on
an individual or subconsolidated basis, if so determined in accordance with Article 154.c
of the Credit Institutions Act and a decision issued by the Croatian National Bank; and
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4) a credit institution excluded from a group of credit institutions in the Republic of
Croatia pursuant to Article 19 of Regulation (EU) No No 575/2013 of the European
Parliament and of the Council of 26 June 2013 on prudential requirements for credit
institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L
176, 27. 6. 2013), on an individual basis.
(2) The recovery plan drawn by the credit institution referred to in items (2) and (3),
paragraph (1) of this Article for its group of credit institutions in the Republic of Croatia
shall apply to all members of the group and shall contain measures the implementation
of which is required on the level of a parent credit institution as well as on the level of
each subsidiary individually (hereinafter: group recovery plan)."
Article 3
In Article 5, paragraph (2), item (1), after the words "a summary on governance", the
words "including selected indicators of recovery plans and the levels determined for
considering whether to apply the recovery plan options,".
In item (2), after the word "including the summary of overall recovery possibility" the
words "and identified critical functions and core business lines, specifying the scenarios
and the possible options appropriate for recovery under such scenarios,".
Article 4
In Article 6, item (2), indent (b) is deleted.
After item (3), a new item (4) is added which reads:
"4) recovery plan consistency with the risk management framework of a credit
institution or a group, including a description of early warning signals and levels at
which risk management actions are taken and reporting to the management on the
possibility that the indicator levels determined in the recovery plan might materialise
and".
Former item (4) becomes item (5).
Article 5
Article 7 is amended to read:
"(1) A credit institution shall determine in its recovery plan the indicators which reveal
possible vulnerabilities, weaknesses or threats to different areas of business, in particular
as regards:
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a)
b)
c)
d)
capital;
liquidity;
profitability; and
risk profile, particularly asset quality.
(2) In addition to areas referred to in paragraph (1) of this Article, a credit institution
shall include in its recovery plan market indicators (such as exchange rate changes,
share prices, credit spread or interest, and announcements of credit rating downgrade
and macroeconomic indicators (e.g. changes in gross domestic product or the country's
credit spread).
(3) Notwithstanding paragraph (2) of this Article, a credit institution shall not be
obligated to include in its recovery plan market indicators or macroeconomic indicators
if it has shown in detail and in a satisfactory way in the recovery plan why these
indicators are not suitable for the credit institution in terms of its legal structure, risk
profile, size and complexity of its business operations.
(4) A credit institution shall include in its recovery plan as a minimum one indicator
from each of the areas referred to in paragraph (1) of this Article.
(5) The indicators referred to in paragraphs (1) and (2) of this Article shall relate to the
financial position of a credit institution in case of an individual recovery plan or to the
financial position of a group of credit institutions in case of a group recovery plan.
(6) The indicators shall be qualitative and quantitative and easily monitored.
(7) The indicators shall be consistent with the indicators used by a credit institution or a
group for which a recovery plan is drawn up in the risk management process.
(8) The capital indicators referred to in paragraph (1), item (a) of this Article shall
include as a minimum common equity tier 1 capital ratio, the total capital ratio and the
leverage ratio. By way of exception, a credit institution may leave out some of the
indicators referred to in this paragraph if it has shown in detail and in a satisfactory way
in the recovery plan why these indicators are not suitable for the credit institution in
terms of its legal structure, risk profile, size and complexity of its business operations.
(9) Capital indicators shall be selected in such a manner that that show any significant
existing or probable reduction in the amount and quality of capital and increase in
leverage.
(10) The liquidity indicators referred to in paragraph (1), item (b) of this Article shall
include as a minimum:
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a) the minimum liquidity coefficient – (MLC) up to one month in kuna and in all
other convertible currencies combined;
b) the minimum liquidity coefficient – (MLC) up to one week in kuna and in all
other convertible currencies combined;
c) the liquidity coverage ratio – (LCR) in all currencies combined;
d) the net stable funding ratio – (NSFR);
e) if imposed, the specific liquidity requirements referred to in Article 225 of the
Credit Institutions Act; and
f) the cost of financing on the interbank market.
(11) Liquidity indicators shall reflect short-term and long-term liquidity and financing
needs of an institution and demonstrate an institution's dependence on the money
market and retail deposits and differentiate liquidity in different currencies if relevant.
(12) Notwithstanding paragraph (10) of this Article, a credit institution may leave out
some of the liquidity indicators referred to in paragraph (10) of this Article if it has
shown in detail and in a satisfactory way in the recovery plan why these indicators are
not suitable for the credit institution in terms of its legal structure, risk profile, size and
complexity of its business operations.
(13) The profitability indicators referred to in paragraph (1), item (c) of this Article
shall include as a minimum return on assets (ROA), return on equity (ROE) and
significant operational risk losses. By way of exception, a credit institution may leave out
some of the indicators referred to in this paragraph if it has shown in detail and in a
satisfactory way in the recovery plan why these indicators are not suitable for the credit
institution in terms of its legal structure, risk profile, size and complexity of its business
operations.
(14) The asset quality indicators referred to in paragraph (1), item (d) of this Article
shall include as a minimum the growth rate of non-performing placements in total
placements and the coverage of non-performing placements by value adjustments. By
way of exception, a credit institution may leave out some of the indicators referred to in
this paragraph if it has shown in detail and in a satisfactory way in the recovery plan why
these indicators are not suitable for the credit institution in terms of its legal structure,
risk profile, size and complexity of its business operations.
(15) Asset quality indicators shall also reflect the quality of off-balance sheet exposures.
(16) The recovery plan shall contain a precise definition of the selected indicator. If the
calculation of an individual indicator is prescribed, a credit institution shall explain in
the recovery plan each departure from the prescribed manner of calculation of the
selected indicator.
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(17) The recovery plan shall contain an explanation for the selection of an individual
indicator and the selected levels of this indicator at which the application of recovery
plan options is considered.
(18) The levels of an individual indicator at which the application of recovery plan
options is considered shall be set in such a manner that they ensure timely application of
recovery plan options and the analysis shall take into account the strength and speed at
which the set levels can be reached.
(19) The recovery plan indicators and their levels determined for the application of
recovery options shall be:
− appropriate to the business model, strategy and risk profile of a credit institution;
− appropriate to the size and complexity of the business conducted by a credit
institution;
− such as to warn of the situations of a severe financial distress;
− consistent with the existing risk management framework and capital plan
indicators, i.e. liquidity and business continuity plans;
− included in the system of management of an institution; and
− include forward looking indicators.
(20) A credit institution shall test as a minimum once a year and more frequently if
required the efficacy of the selected indicators and the selected levels of their values.
Article 6
A new Article 7.a is added which reads:
"Monitoring recovery plan indicators
Article 7.a
(1) A credit institution shall set up an adequate system for regular monitoring of the
selected indicators and specify by internal bylaws as a minimum the dynamics and the
manner of monitoring and the reporting procedure.
(2) Should a credit institution determine by means of regular monitoring of the selected
indicators that they have reached the level determined for applying recovery plan
options, the management board of the credit institution shall within maximum five
working days adopt a decision on applying recovery plan options or on refraining from
applying recovery plan options and notify the Croatian National Bank thereof without
delay. A decision by a credit institution to refrain from applying recovery plan options
shall be explained in detail.
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(3) The management board of a credit institution may adopt a decision on applying the
options envisaged under the recovery plan even if the determined indicators have not
reached the level envisaged for taking measures and shall inform the Croatian National
Bank of any such decision without delay."
Article 7
In Article 8, after paragraph (1), new paragraphs (2) and (3) are added which read:
"(2) Critical functions and core business lines have to be determined at a sufficient level
of granularity (e.g. retail deposit segment, retail lending segment, corporate deposit
segment, etc.).
(3) When determining whether an individual function is critical or not, a credit
institution shall analyse as a minimum:
– the impact of disruption in the provision of that service on third parties and the
financial system as a whole;
– the market in the relevant service as a minimum from the viewpoint of that
market's concentration; and
– the possibility that another service provider can provide the said service in a
comparable scope and of comparable quality, at a reasonable cost for the client
and within a reasonable time frame."
The former paragraph (2) becomes paragraph (4).
Article 8
In Article 10, paragraph (4) is amended to read:
"(4) The recovery plan shall also include options which a credit institution may apply if
the Croatian National Bank has determined in a decision that the conditions for early
intervention referred to in the Credit Institutions Act have been met. A credit institution
shall state clearly in the recovery plan which options will be considered at the early
intervention stage."
Article 9
In Article 11, paragraph (1), at the end of the sentence the words "and determine the
level of each selected indicator at which applying of each particular option is
considered."
Paragraph (2) is amended to read:
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"(2) The recovery options shall contain an overview of the envisaged activities,
measures, agreements or strategies from each of the following areas:
a) activities in the area of capital required to maintain or restore business viability and
financial situation of a credit institution or members of a group covered by the
recovery plan, the main objective of which is to ensure viability of critical functions
and core business lines; including agreements and measures the main objective of
which is to maintain or restore the required own funds of a credit institution or
own funds on a consolidated group level through external recapitalisation and
other internal measures for increasing own funds, with the aim of improving the
capital position of a credit institution or a group for which the plan is being drawn
up;
b) activities in the area of liquidity, including agreements and measures ensuring
access to sources of financing in crisis situations to ensure further provision of
services and meeting of obligations as they fall due; these measures shall contain
external measures, and where appropriate, measures of reorganisation of the
liquidity available within a group, the sources of financing in crisis situations shall
include potential sources of liquidity, the assessment of available instruments of
collateral and the assessment of the possibility of liquidity transfer within a group
and between individual business lines, including, where appropriate, an analysis of
the possibilities of how and when an institution may, under the conditions
determined by the plan, resort to the use of central bank instruments, specifying
the assets that might be used as an instrument of collateral;
c) agreements and measures aimed at reducing leverage ratio;
d) agreements and measures for reducing risk exposures, i.e. restructuring of
business lines, including, where appropriate, an analysis of the possible material
sale of assets, legal entities or business lines;
e) agreements and measures aimed at achieving a voluntary liabilities restructuring,
provided this does not lead to events such as default, termination of agreement,
reduction in the value of assets of a credit institution or members of a group
covered by the recovery plan, etc.;
f) other measures and strategies ensuring and restoring the viability of regular
operations and the stability of the financial position of a credit institution or
members of a group covered by the recovery plan."
Article 10
Article 13 is amended to read:
"(1) The recovery plan shall include an analysis of the preparatory measures that a credit
institution or a group for which a plan is being drawn up has taken, plans to take or will
need to take to facilitate implementation or improve the efficacy of the recovery plan,
particularly with regard to options which require a longer time frame or involve a larger
number of activities for application or options which necessitate timeliness in order for
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them to be effective, such as for instance different options for increasing own funds or
selling different forms of assets.
(2) The recovery plan shall define the time frame for the implementation of the
preparatory measures referred to in paragraph (1) of this Article.
(3) In addition to preparatory measures referred to in paragraph (1) of this Article, the
recovery plan shall also contain measures for removing the obstacles identified in the
recovery plan which are necessary for efficient implementation of the recovery options."
Article 11
In Article (14), paragraphs (1) and (2) are amended to read:
"(1) A credit institution shall, taking into account the nature, scope and complexity of its
activities, prepare a range of stress scenarios of a severe financial distress so as to
determine various hypothetical events on which it will test the effectiveness of options
and appropriateness of indicators and their levels determined by the recovery plan.
(2) A significant credit institution shall, when testing recovery plans, use as a minimum
one scenario for the following types of events:
1) systemic events on overall system level which might have severe negative effects
on the financial system or the real economy;
2) events specific for a credit institution or a group which might have serious
negative effects on a credit institution, a group or a credit institution within a
group; and
3) a combination of the events referred to in items (1) and (2) of this paragraph
which take place simultaneously and are interactive."
Article 12
In Article 15, after paragraph (1), a new paragraph (2) is added which reads:
"(2) A credit institution shall, when preparing each of the stress scenarios referred to in
Article 14 of this Decision, use the events of sufficient intensity for the purpose of
meeting the requirements referred to in paragraph (1), item (2) of this Article."
The former paragraphs (2) and (3) become paragraphs (3) and (4).
In paragraph (2) which becomes paragraph (3), item (3) the words "business model"
are replaced by the words "risk profile".
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In paragraph (2) which becomes paragraph (3), item (5), before the words "payment
and settlement systems", the words "operation, including" are added.
Article 13
In Article 19, paragraph (3), the words "the number of events when making stress
scenarios in accordance with Articles 14 to 18 of this Decision" are replaced by the
words "the number of stress scenarios in accordance with Article 14, paragraph (3) of
this Decision".
Article 14
In Article 21, paragraph (1) is amended to read:
"(1) A credit institution shall update once a year the existing recovery plan or, where
necessary, draw up a new recovery plan and submit it to the Croatian National Bank by
31 December of the current year at the latest."
After paragraph (2), a new paragraph (3) is added which reads:
"(3) Attached to the recovery plan submitted to the Croatian National Bank shall be a
decision of the management board on the adoption of the recovery plan or on its
updating, a decision of the supervisory board on the approval for the adoption or
updating of the recovery plan and Annexes 1, 2, 3, 4 and 5 which form an integral part
of this Decision."
TRANSITIONAL AND FINAL PROVISIONS
Article 15
(1) This Decision shall be published in the Official Gazette and shall enter into force on
the eighth day after the day of its publication in the Official Gazette.
(2) Pending the adoption of a decision on the preparation of the recovery plan referred
to in Article 154.c of the Credit Institutions Act, a credit institution with a head office in
the Republic of Croatia which is a member of a group of credit institutions in the EU
shall update the existing recovery plan or make a new recovery plan and submit it to the
Croatian National Bank:
1) on an individual basis unless it is a part of a group of credit institutions in the
Republic of Croatia; or
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2) on a consolidated basis if the parent credit institution is located in the Republic of
Croatia.
(3) The part of the provision of Article 7 of this Decision under which paragraph (3) is
added to Article 8 of the Decision on recovery plans of credit institutions shall apply
until entry into force of a Commission delegated regulation to be adopted by the
European Commission pursuant to Article 115 of Directive 2014/59/EU of the
European Parliament and of the Council of 15 May 2014 establishing a framework for
the recovery and resolution of credit institutions and investment firms (SL L EU 173,
12. 6. 2014) which will prescribe the criteria for determining critical functions.
No.: 158-020/06-15/BV
Zagreb, 9 June 2015
Croatian National Bank
Governor
Boris Vujčić
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Annex 1
Recovery plan indicators****
Name of indicator
Level of early warning
Level of initiating
recovery plan options*
1. Capital indicators
a) common equity tier 1 capital
ratio**
b) total capital ratio
c) leverage ratio
2. Liquidity indicators
a) minimum liquidity coefficient
(MLC) up to one month in kuna
b) minimum liquidity coefficient
(MLC) up to one month in kuna
and all other convertible
currencies combined
c) minimum liquidity coefficient
(MLC) up to one week in kuna
d) minimum liquidity coefficient
(MLC) up to one week in all
other convertible currencies
combined
e) liquidity coverage ratio (LCR)
in all currencies combined
f) net stable funding ratio
(NSFR)
(g) imposed specific liquidity
requirements***
h) the cost of financing on the
interbank market
3. Profitability indicators
a) return on assets (ROA)
b) return on equity (ROE)
c) significant operational losses
4. Risk profile indicators
a) annual growth rate of nonperforming placements
b) coverage of non-performing
placements by value adjustments
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* If a credit institution has determined several levels for different options, the level at
which the first option is initiated shall be entered.
** If a credit institution has explained why it does not apply this indicator, it shall enter
under level of initiating recovery plan option "not applicable".
*** To be completed only by those credit institutions which have been imposed specific
liquidity requirements pursuant to Article 225 of the Credit Institutions Act (Official
Gazette 159/2013 and 19/2015).
**** A credit institution shall add lines for any additional indicators of recovery plans it
has determined and which are not listed in the table.
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Annex 2
Critical functions
Functions
Does the
termination
of the
provision of
that service
have an
impact on
third parties
and the
financial
system as a
whole?
Is there a
market
concentration
in this service?
Is it possible
for another
service
provider to
adequately
provide the
relevant
service?
Is this a
critical
function?
Key
services
for the
provision
of critical
functions
Annex 3
Core business lines
Core
business
lines
Explanation of the reasons why a business line is considered core.
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Annex 4
Recovery options
Areas of options
Name of option
Capital
Liquidity
Financial
leverage
Risk
Restructuring
management
liability
Other
Is it applied in
an early
intervention
phase
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Annex 5
Scenarios
Type of scenario
Name of scenario
Specific
System
ic
Combi
ned
Slow/fa
st
moving
events
Shocks and
their
parameters
Use of
reverse
stress
testing
Level of
indicator
after use
of shock
Options
applicable
in the
scenario
Level of
indicator
after use
of option
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designated authority
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