Germany's BayernLB to operate in Croatia again

Central Bank of Croatia has allowed Bayerische Landesbank to operate in Croatia again – but only if it guarantees that it would not behave as it had in the past when it abandoned a Croatian bank in near collapse.

The Munich-based BayernLB had sent another request for operating the Croatian-based branch of Austrian Hypo Alpe-Adria-Bank and its sister bank in late August, after Central Bank governor Zeljko Rohatinski rejected its first request in July.

Rohatinski said its behavior in the past in Croatia was "far below professional levels."

BayernLB needed approval from the Central Bank to operate the branch of the Hypo Alpe-Adria-Bank, in which it acquired a majority stake in May.

In its second request, BayernLB has "accepted all the conditions set by the Central Bank," and therefore its council approved it at its meeting late Wednesday, according to a Central Bank statement, which was signed by Rohatinski and posted on its Web site.

BayernLB spokesman Peter Kulmburg confirmed the decision and that the bank had accepted the conditions.

The Central Bank had insisted that BayernLB must apologize to depositors of Rijecka Banka, which it once controlled. In 2002, thousands of them rushed to the bank to withdraw their savings, fearing that the bank would collapse after its managers reported a US$98 million (EUR71 million) loss resulting from high-risk foreign exchange transactions.

BayernLB then returned its stake to the Croatian government for a symbolic EUR1 - rather than cover the loss - leaving the government to handle the crisis.

The Central Bank also demanded that BayernLB carries out due diligence in both banks in Croatia; to estimate their potential losses and increase their capital. It also had to implement Central Bank's directive against money laundering and terrorism financing.

Rohatinski's rejection of BayernLB's first request had raised eyebrows in Germany, Croatia's longtime ally and supporter of its bid to join the European Union. Prime Minister Ivo Sanader had acknowledged it triggered "informal" complaints from Germany.