ISSN: 2560-1601

Vol. 26, No. 2 (HR)

Febr 2020

Croatia economy briefing: The clash between Croatian judiciary system and Raiffeisen Bank and its consequences Benjamin Petrović

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Kiadásért felelős személy: Huang Ping china-cee.eu 2017/01

The clash between Croatian judiciary system and Raiffeisen Bank and its consequences

Summary

Stemming from issues long overdue, February 2020 brought a shift in leadership in Raiffeisen Bank in . Liana Keserić was named as the new CEO of Raiffeisen bank, replacing Michael Müller, who resigned from his position after the affair in which his communication towards several PR agencies, aimed at pressuring the Constitutional Court of Republic of Croatia and other courts, was made public. Such initiative is of course inadmissible according to Croatian and international laws, and the consequences of such dealings are yet to be analysed.

Supreme Court arbitration regarding unfair credit contracts

Before taking a look at the profile of the new, hopefully law-abiding CEO of Raiffeisen Bank, it is important to overview the actions of Michael Müller, and what set of circumstances caused them. In September 2019, the Supreme Court of the Republic of Croatia has arbitrated that banks in Croatia have abused the collective interests and rights of beneficiaries of credits contracted in the currency of Swiss francs. Such decision was explained with the arguments that the banks have, at certain periods, negotiated credit contracts by using unfair, null and void contract sections. In line with that, the banks were instructed with any further activities of that kind. Goran Aleksić, a representative of a civil organization Franc, which is defending the collective rights of consumers and beneficiaries with their credits contracted in Swiss francs, described the eight yearlong court procedure as a news of joy and a proof that “currency clause and variable interest rates were unfair and that debtors have the right to ask for their rights to be satisfied through private prosecutions”. Aleksić, who is also a Member of , called upon around 130.000 debtors and beneficiaries, encouraged by the decision of the Supreme Court, to sue the banks, with the expectation that the banks will attempt to settle their disputes with the debtors, instead of facing the costs of entering the long and expensive court procedures.

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Further clashing with civil activists

In a short period of time, after assessing that the specified banks did not behave in line with the arbitration and the instructions of the Supreme Court, meaning that they proceeded with negotiation and implementation of null and void credit contracts, the aforementioned Goran Aleksić decided to file criminal charges against the following banks and their officials: Erste & Steiermärkische Bank d.d., Bank of d.d., d.d., Addiko Bank d.d., Raiffeisenbank Austria d.d., OTP banka d.d. Aleksić explained his intention by describing how the banks have created an oligopoly, in order to dominate the market, and therefore, through indirect shaping of the market conditions, have developed a planned and systematic process of negotiating unfair and null and void credit contracts. Such dealings could easily be considered as damage to national economy. If the citizens of Croatia who are beneficiaries in credits contracted in Swiss francs, had the funds and means available, in the manner they hoped and agreed upon, those funds would be directed towards further spending, which would inherently help the nations GDP per capita. Taking that into account, it is surprising that the reactions regarding the described issues from Croatian National Bank, and more importantly the and its Ministry of Finance, were quite mild and not in line with the stakes the troubled occurrences imply.

Communication scandal breakout

Returning to one of the main actors in the story, Michael Müller, after everything previously described, as the CEO of Raiffeisen Bank, facing criminal charges, the only option for him and other incriminated banks was the appeal towards the Constitutional Court of the Republic of Croatia. In their intention to achieve the most effective communication towards the Constitutional Court, the representatives of the Bank, possibly acting according to the directions from Austria, where the main headquarters of the bank are located, called upon several PR agencies to lead the “crisis communication” related to disputes with the judiciary system and civil organization Franc, representing the beneficiaries. Their mistake was the public leak of the document in which, among other services, pressuring the Constitutional Court, and therefore affecting the legal decision-making process is asked from the PR agencies. As such initiatives are prohibited according to national and international laws, a scandal erupted. Again, the reactions from responsible institutions were mild, with Croatian National Bank condemning the action and announcing inspection, but not doing much more, at least publicly. After first media questions, the representatives of the Raiffeisen Bank were adamant in stressing how the Bank

2 would never stray from respecting the laws and articles of Croatia. Until the time of writing, it is unclear which PR agency was elected to lead the “crisis communication”, and whether any sort of suspicious communication towards the courts of Croatia has occurred, or has been occurring before, regarding other issues the banking sector has faced. Regardless, as the media pressure kept on piling, Michael Müller resigned from his position in January 2020. Such action can in some way be considered an acknowledgement of the problem and a recognition of guilt, but the face of Raiffeisen Bank is still soiled by scandalous attempts to influence the judiciary decision-making process.

Questioning the ethical and business principles

Moreover, the discussed issues cause concern of ethical and legal principles being overrun and disregarded when it comes to preserving the interests of banking sector, “big businesses”, and corporate dealings. It is curious how a well-respected international bank could lead itself to a situation in which it negotiates unfair, null and void credit contracts to its beneficiaries, and even more perplexing that as a solution to the arbitration of the Supreme Court, it decides to influence the Constitutional Court to adapt its decisions. Matters of business ethic, regularity of work, alignment and compliance with rules, regulations and guidelines which shape any businesses are now put to question on several levels. Furthermore, the described affair implies the existence of more similar ones, both from ethical and business perspective, which, in an ideal environment, should correlate and drive any venture regardless whether it is business, politics or other sectors. Another source of consternation is the shortage of calls to responsibility. Form the Raiffeisen Bank headquarters in Austria, Croatian National Bank, or the Government of Croatia, the scandalous series of events were faced as something more that trivial, everyday matters. In that way, the debtors and beneficiaries victimised by the banking sector are hardy to find justice when their surrounding is formed as a fertile ground for regulation bending, distortion of laws and failure to comprehend the simplest ethical principles.

A new CEO and a necessary transformation

As it is already mentioned, the new CEO of Raiffeisen Bank in Croatia, Liana Keserić, board member since 2015, has a tough mission to steer the Bank away from the recent troubles, and regain the trust from the public and partners. Her background shaped by work in IT sector is considered to be an advantage for the future digitalization of the Bank. In line with that,

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Keserić has already announced the needed transformation of the bank towards clarity of work, simplicity in its dealings, and actively participating in achieving a higher level of financial literacy of the society. Additional advantage is her long-term experience of working in different sectors in the Raiffeisen Bank. From operational and transactional services to project management and management of business processes, her alleged skill set encompasses a wide variety of elements which shape the functionality of the Bank, and therefore, it will be easier for her to coordinate the different branches of the Bank.

Conclusion

After a turbulent period in which it was unclear on how Raiffeisen Bank will come out from the web of poor and corruptive decisions in the process of clearing its name from the self -imposed damage caused by negotiating unfair credit contracts and creating a high number of debtors, the only victim of the systematic process of distortion of ethical and business principles is the former CEO Michael Müller. Considering how the described contracting affected the national GDP per capita, and how the leaked initiative directed at influencing Croatian judiciary system caused a direct negative effect at both national economy, its courts and reputation, it is to be seen whether the condemning reactions from the Croatian National Bank and the Government will turn into precise and structured measures of preventing similar occurrences in the future. The new CEO of Raiffeisen Bank, Liana Keserić is faced with a tall order of recovering the reputation of the Bank, restructuring the areas responsible for failures in business, renewing the public trust, taking ownership of the damage done and learning from such mistakes.

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