[Distributed to the Council and C. 186. M. 60. 1928. ii the Members of the League.] (F. 514.)

Geneva, August 3rd, 1928.

LEAGUE OF NATIONS

REPUBLIC OF ESTONIA (BANKING AND CÜRBENCY BEFOBM) 7 % LOAN, 1927

FIRST ANNUAL REPORT BY THE TRUSTEE

covering the period from June 15lh, 1927, to June 30th, 1928.

I ntroduction .

In conformity with the decision of the Council of September 15th, 1927. I have the honour to submit to the Council of the League of Nations my first annual report as Trustee for the " Republic of Estonia (Banking and Currency Reform) 7 % Loan. 1927 ”, it may be useful to give in this first report a somewhat detailed description of the execution of the scheme and of the duties of the Trustee. The essential features of the Estonian banking and currency reform, on which the Estonian Government and the financial experts of the League had already been working for some time, are contained in the Protocol signed at Geneva on December 10th. 1926. by the Estonian Minister of Finance, and approved by the Council on the same day. As provided for in this Protocol, the following laws were passed by the Estonian Parliament early in May 1927. viz., (1) the Eesti Pank Statutes Law, (2) the Monetary Law of Estonia, (3) the Law to terminate the Issue of Treasury and " Change ” Notes, and (4) the Foreign Loan Law 1. Thereupon, it was permissible to open negotiations for the loan which was to be issued under the auspices of the League and which was to produce an effective net yield of £1.350,000.

F o r e ig n L o a n .

The agreements for the loan, after submission to the Chairman of the Financial Committee for approval, were signed on June 15th, 1927, with representatix es of the British and American issuing houses, viz.. the British Foreign and Colonial Corporation, associated with the Midland Bank. London, and Messrs. Hallgarten & Co., New York. The British portion of the loan was £700.000 (of wdiich £200.000 were placed in Llolland, in the form of sterling bonds), and the American portion $4,000,000, or approximately £821,912. The loan bears interest at 7 per cent, and the issue price in both countries was 941 per cent, from which there had to be deducted the commissions and underwriting charges of the issuing houses, amounting, for the London issue, to 5 per cent and for the American portion to 5^ per cent. The net amount thus receivable by the Government was, in the case of the former, per cent, and in that of the latter, 89J per cent. At these respective net prices, the total yield of the loan, stated in terms of British currency, was about £1,361,600, which was duly paid on July 1st, 1927. The loan is to be repaid in forty years by an accumulative sinking fund of | per cent, to be employed half-yearly in the purchase of bonds below par, or in their amortisation by drawings at par. One of the clauses of the General Bond for the loan deserves special mention. Article 14 fcl) °f that document lays down that " the Government will not, so long as any of the bonds remain outstanding, permit the Statutes of the Bank of Issue as at present constitut ed to be altered in any manner which, in the opinion of the Financial Committee of the League of Nations, might te conducive to the depreciation of Estonian currency in terms of English or United States of America currency ”.

1 For the text of these laws, see document C.2*27.M.89.19*27.11. Publications of the League of Nations

II, ECONOMIC AND FINANCIAL

5,1 N. i.OoO (F.) 825 (A,) 8/28. — Imp, Réunies, Chambéry. 1928. II. 42. o __

W ith the issue of the loan, the duties of the Trustee began. These duties fall into two parts : (a) The supervision of the employment of the loan proceeds ; (b) The control of the assigned revenues.

Sir Walter J. I’. Williamson. C.M.G., who was nominated by the Council as AdvLev to the Eesti Pank. has been acting throughout as my representative in the carrying out of my duties as Trustee. It is with pleasure that I take this opportunity of thanking Sir Walter Williamson publicly for his valuable and intelligent collaboration.

T h e E m p l o y m e n t o f t h e L o a n P r o c e e d s .

In accordance with Article I, sub 5, of the Protocol, the yield of the loan was paid into a special account under the control of the Trustee. Article IX' provides that the loan may be employed and that the Trustee shall p i mit payments, only for the following two purposes :

(1) " The payment by the Estonian Government to the Bank of Issue of an amount equivalent to one million pounds sterling, in exchange for long-term assets of the Bank. (2) “ The application by the Estonian Government of the balance of the loan for the establishment of a mortgage institute.

The net proceeds of the loan were therefore to be divided into two portions, viz., £1,000,000, to be allotted to the Eesti Pank in payment of a corresponding value of long-term loans to be transferred to a new Mortgage Bank to be created for the purpose, and £350,000 to be given to that institution as capital. It was also provided that the new Statutes of the Eesti Pank should become operative as soon as it had received the above-mentioned sum of £1,000,000. and that the Monetary Law and the Law to terminate the Issue of Treasury and 11 Change ” Notes were to come into force simultaneously with the Eesti Pank Statutes. It will thus be seen that the establishment of the Mortgage Bank was the last, and an essential, link in the chain of enactments required to carry out the scheme of financial reform. It accordingly became the task of the Government, after the return of the Minister of Finance from London, to frame the required Statutes and present them to Parliament. Pending their enactment, which it was hoped might be effected in time to allow of the entire scheme coming into force by the beginning-of December 1927, the Government issued instructions to the Eesti Pank in July 1927. under the authority of the Statutes then in force, to prepare detailed lists of its discounts, loans, and advances, divided into the three categories indicated in the report of the Financial Committee, dated December 8th, 1926, viz., (a) items of a long-dated character to be transferred to the Government, for eventual transfer to the Mortgage Bank ; (b) items to remain on the books of the Eesti Pank under the Government guarantee, to the amount of approximately Ekr. 15 million, representing credits which, though more liquid than those referred to above, wrere still mainly long-term in character, and (c) items of a short-term character which conformed to the new Statutes of the Bank. The Government at the same time appointed a representative, who was to report to the Minister of Finance regarding groups (a) and (b) above, and further instructed the Bank that the entire classification was to be approved by the Adviser. The Bank was, at the same time, directed gradually to bring its operations into conformity with the New Statutes, as set forth in Article 51 thereof, with a view to their final adoption by December 1st. 1927. The Mortgage Bank Statutes were presented to Parliament early in November, but it speedily became evident that there was a considerable amount of dissatisfaction on the part of the New Settlers (one of the Government groups) regarding the powers of the Bank to grant the particular type of loans in which they were interested, viz.. loans to the smaller farmers who have little or no real property to offer as security. Certain of the opposition parties also raised the point that Parliament had not been given sufficient information as to the nature of the assets to be transferred to the Government by the Eesti Pank. A motion was proposed to appoint a special Commission to re-examine the Statutes of the Mortgage Bank and to report to Parliament on the nature of the above-mentioned assets. The Government, while at first opposed to the appointment of this Commission, eventually agreed to accept it if a short time-limit was fixed for its labour ; but this the proposers of the motion declined to accept. It was accordingly carried in its original form, and the Government thereupon resigned on November 23rd, 1927. but continued in office in conformity with local constitutional practice, pending the formation of a new Government. As it was now evident that the reform scheme could not come into force by the beginning of D ecem ber as originally contemplated, the Government issued a new set of instructions to the Eesti Pank on November 25th. 1927. According to these instructions, operations by the Bank in respect of group (a) of the classification were restricted to items in regard to which there were prior unfulfilled obligations, or to operations approved by the Government representative, while, as regards group (b), the Bank was directed to prepare liquidation schemes for each item in agreement with the Government representative, providing for the settlement of the loan as speedily as the circumstances of the debtor rendered possible. Cases where the liquidation extended beyond three years were to be referred to the Government. Finally, the instructions laid down that the Bank might, up to December 31st, 1927. grant loans, etc.. under its existing Statutes, to be classified under group (c), but only with the approval of the Adviser.

Passing of Mortgage Bank Statutes.

The special Commission appointed by Parliament immediately proceeded to carry out the duties imposed upon it. and shortly after the new Government had been formed (December 12th . the revised Statutes were again presented and were passed on December 16th (see Appendix II). As might be expected, the principal change made by the Commission and agreed to by Parliament, was a provision to allow of loans being granted by the Bank to individuals on personal security only. These loans, however, may not be made out of its capital or out of the money received from the foreign loan. The effect of this prohibition will be that, in practice, such loans will be given almost entirely in the form of debentures, which must be placed somewhere, and that it will fall mainly on the Government to take them up. unless the Bank can find other purchasers. The Eesti Pank will only be able to do so if the debentures are guaranteed by the Government. Even so. the amount will be limited. In the first place, the Eesi i Pank is allowed by Article 51 (12) of its Statutes to invest in securities of. or guaranteed by, the Government, having a maturity up to five years, to an amount not exceeding iis paid-up capital (Ekr. 5 millions). Secondly, the Mortgage Bank will have to reckon with the competition of the Land Bank, which has recently issued a series of five-year bonds for this very purpose. The only way in which the Bank can give these loans in cash from its own funds will be out of sums repaid by other borrowers ; but in so far as these other borrowers are corporations, firms or persons whose debts have been taken over from the Eesti Pank for administration on Government account, it will rest with the Government to decide (as provided for in the Statutes of Lie Mortgage Bank) whether the recoveries shall be paid over to the Government in cash or in debentures. If the latter course is agreed to. it will be an indirect way of financing these loans through the Government.

Releases by Trustee.

:n the meantime, in anticipation of the passing of these Statutes, arrangements had been mac: between the Government and the Trustee for the release of t he £1,000,000 on January 1st, 192". The payment to the Eesti Pank was effected on that date. The work of handing over the assets to be transferred to the Mortgage Bank, and the documents relating thereto, has sine : been practically completed. The £350,000 earmarked for the Mortgage Bank were released on February 27th, 1928, after receipt by the Trustee of an officially certified translation of its Statutes (Appendix II).

New U n i t of C u r r e n c y .

nder the Monetary Law. which also came into force on January 1st. a new unit of currency ^as been established, viz., the “ kroon divided into 100 cents, the kroon having a \alue equivalent to the corresponding Scandinavian unit, viz.. 18.16 to the sovereign, and 1 cent bein': equal to 1 Eestimark. the previous unit. As the par value of the kroon approximates very closely to a hundred times that at which the Eestimark has been maintained foi a considerable period (an average of about 1,820 to the £), the final stabilisation of the Estonian currency has- been effected without any dislocation. — 4 —

A malgamation o f N o t e I s s u e s .

In conformity with the provisions of the Law to terminate the Issue of Treasury and Change ” Notes (the latter also a Government emission), both note issues have been terminated, and the Treasury note issue has been amalgamated with that of the Eesti Pank. with the exception of notes of 100 marks denomination. These, together with the “ Change notes of 25 marks, remain in circulation for the time being as subsidiary money, with values of 100 and 25 cents respectively, until replaced by coins of the cents denominations to be issued by the State under the Monetary Law. The value of the note issues so transferred to the Eesti Pank has been paid for by the Government, to the extent of Kroons 5,000,000 in gold, and the balance by a corresponding cancellation of the Bank’s debt to the Government in respect of the Government special deposit with the Bank.

S t a t e S a v in g s B a n k .

As the new Statutes of the Eesti Pank prohibit it from paying interest on deposits, a Savings Bank has been created for the express purpose of receiving sums from small depositors. This bank commenced operations on January 1st. 1928—the maximum limit for a deposit on current account by an individual being Ekr. 2,000, and that for an institution, Ekr. 5 .000. The Minister of Finance has the right to increase the aforesaid limits on condition that, in such case, three months’ notice must be given for withdrawals. The Minister of Finance is also empowered to prescribe conditions and periods for fixed deposits. The direction of the State Savings Bank is entrusted to a Board of five members, presided over by the Deputy Minister of Finance, the technical management being in the hands of the Eesti Pank. The Board of Directors has sanctioned the following rates of interest, with the approval of the Minister of Finance :

Current accounts ...... 4i per cent. Fixed deposits for periods of less than one year . . 5 ,, Fixed deposits for one year ...... 5§ ,,

G o v e r n m e n t D e p o s i t s L a w .

In connection with the above-mentioned prohibition against the giving of interest by the Eesti Pank on deposits, a law was passed in November 1927 to permit the Minister of Financeto purchase out of various monies deposited with the Government at the Eesti Pank, the bonds and debentures of Estonian Mortgage Bank, and public securities and these guaranteed by the State, up to the amount of 80 per cent of such deposits. In the case of bonds or debentures not so guaranteed, a maximum limit of 15 per cent is fixed. This law is not applicable to the current funds of the Treasury, deposited with the Eesti Pank. Its object is not only to enable some interest to be earned on funds deposited with the Government, but to provide the means by which the State will assist in creating a market for the bonds and debentures mentioned.

The Assigned Revenues.

In conformity with the Protocol, the excise duties on (a) tobacco, (b) beer, (c) mulches and other minor articles have been assigned as security for the Banking and Currency Reform 7 % 1927 Loan (Article II, sub 1). The service of that loan—together with the service of a small loan of £130,000 raided in 1926—has a first charge on these revenues (Article II, sub 2) With regard to the assigned revenues, the Trustee has the following duties :

(1) The assigned revenues are, as and when collected, paid into a special account under the control of the Trustee or his representative (Article III, sub 2). (2) The Trustee has to reimburse to the Estonian Government any balance on the account not retainable under the Protocol or the loan contract (Article III,

(3) The consent of the Trustee is required for the use of the assigned re ve n u e s as security for any new loan (Article I. sub 3). (4) The Trustee has the right to veto any measure of the Estonian Government which, in his opinion, would diminish the value of the assigned revenues and thus threaten the security of the bondholders The Estonian Government has the right to appeal to the Council against any decision of the Trustee on this point (Article II- sub 4). — 5 —

(5) If the yield of the assigned revenues falls below 150 per cent of the service of the loan, the Trustee may demand that additional revenues shall be assigned. Here again, the Estonian Government has the right to appeal to the Council ( Article II. sub 5).

To these stipulations of the Protocol various detailed provisions, which need not be repeated here, are added in the General Bond, with regard to the forwarding of monies by the Trustee for the payment of the service of the loan, the action to be taken in the case of default, etc. During the period under review in this report, the administration of the assigned revenues, which was carried out for me by Sir Walter Williamson, has not given rise to any difficulty. Sir Walter Williamson watches the Special Blocked Account into which the assigned excise revenues are paid, and sees that the whole amount at credit of the account is remitted at the beginning of each month to the Midland Bank, London, and Hallgarten & Co., New York— the remittances being made in the ratio 700 : 822, representing the portions of the loan raised in the two countries. As soon as the amounts required for each half-year ending June 30th and December 31st have been thus paid, the further credits to the Blocked Account are released to the Government, less the sum payable in the half-year to the Royal Exchange Assurance, London, in respect of the loan mentioned above of £130,000 taken in 1926 for the purchase of railway material in Great Britain. By the terms of this loan, the Government undertook not to create any specific fixed mort gagé charge or other encumbrance on any of the Estonian State revenues for the purpose of securing any7 other loan without at the same time creating a fixed mortgage charge or other like encumbrance to secure the payment of this loan. The Trustee has accordingly entered into a deed with the lenders, undertaking that he will not at any time release to the Government any part of the monies from time to time standing at the credit of the Special Blocked Account unies s. prior to such release, he is satisfied that the payments to be made to the lenders in respect of this loan have been, or will be, duly provided for. The Trustee is furnished monthly by the Eesti Pank. where the account is kept, with a statement of the sums credited during the month in respect of the several assigned revenues, the amounts remitted during the month, the sums retained in connection with the loan of £130.000, and the balance, if any. This balance is released by the Adviser, acting as the Trustee's representative, after all payments chargeable to the Blocked Account have either been made or retained for future payment. In Appendix I. figures are given of the yield of the excise revenues assigned to the service of the International Loan of 1927 for the third and fourth quarters of that year, and the first and second quarters of 1928, as also the remittances-made therefrom for the service of the loan for the second half of 1927 and the first half of 1928. The yield for each of the above-mentioned four quarters represents the following approximate percentages of one-quarter of the annual sum necessary for the service of the loan, as compared with the 150 per cent required by the Protocol : 1927 % 1928 % Third quarter . . . . 270 First quarter . . . . 242 Fourth ...... 225 Second ...... 252

In order to enable the Council to follow the financial results of the banking and monetary reform accomplished in Estonia under the auspices of the League of Nations. I have requested the Adviser of the Eesti Pank to draft a note on the development of the financial situation during the period covered by this report. This note forms Appendix III.

(Signed) A. Janssen. Appendix I.

YIELD OF ASSIGNED EXCISE DUTIES

fo r T h ir d a n d F o u r th Q u a r t e r s of 1927, a n d F irst a n d Se c o n d Q u a r t e r s of 1928.

1. VII. to 30. IX. 1. X. to 31. XII. 1. I. to 31. III. 1. IV. to 30. VI, 1927. 1927. 1928. 1928.

Tobacco ...... 1,122,198.37 907,552.25 969,688.92 1,021.838.69 B e e r ...... 220.912.50 157.200.— 189,375.— 207.705 — M a t c h e s ...... 8,750.— 8.750.— 8,797.50 13,279.- Wines, brandy, liqueurs 42,653.20 67,949.55 68,871.90 64,463.15 Y east...... 6,975.— 34,170.— 17,148.75 Cigarette-cases and paper 11,717.50 9,478.90 10,174.25 9,508.30

1,413,206.57 1.185,100.70 1.264,056.32 1.316,8*4.14

Remittances to London and New York.

For service of loan for second half of 1927 :

To London : £26,450. To New York : $151,000.

representing equivalent of Ekr. 1.047.904.54.

For service of loan for first half of 1928 :

To London : £26,400. To New York : $1 5 0 ,0 0 0 .

representing equivalent of Ekr. 1,039,977.11. Appendix II.

[Translation.] STATUTES OF THE NATIONAL MORTGAGE BANK OF ESTONIA (PIKALAENU PANK)

[State Advertiser, December 30th, 1927, No. 115.)

PART I.—GENERAL PROVISIONS.

Article I .

The object of the National Mortgage Bank of Estonia (hereinafter called “ the Bank ’’) is to grant against the pledge of immovable property or ships, or other securities, long-term loans for Estonian agriculture, industry, shipping and buildings, to municipalities and other institutions and enterprises, and to co-operative organisations. By virtue of the provisions of these Statutes, there shall be handed over to the Bank : (1) The loans and claims to be transferred to the Government in conformity with Article 82 of the Statutes of the Eesti Pank ; and (2) Three hundred and fifty thousand pounds sterling out of the State Foreign Loan of 1927. Article 2.

The Bank has the rights of a juridical person. It is liable with its assets for obligations incurred and for possible losses. Article 3.

The seat of the Bank shall be at Tallinn, and its activities shall extend throughout the Republic. The Bank may open branches and agencies when so decided by the Government.

Article 4.

The Bank shall have a seal bearing the Republican coat-of-arms, surrounded by the Bank’s style. Article 5.

All communications addressed to the Bank, as well as correspondence relating to its activities, shall be exempt from stamp duty.

PART II.—FUN PS OF THE BANK.

Article 6.

A sum of five million krones shall be allotted from the State Foreign Loan of 1927 to Serve as the capital of the Bank. The Bank may utilise not more than three million krones °f this capital for buying its own bonds and the debentures provided for in Article 61 (2) of these Statutes, or for granting loans, while two million krones must be invested in public securities or those guaranteed by the Government. The losses of the Bank, which cannot be covered out of the reserve fund (Article 7), shall be met from the capital.

Article 7.

The reserve fund, destined to provide for the interest on, and redemption of, the Bank s bonds and debentures, as well as to meet possible losses (if the current receipts are insufficient *or that purpose), shall be built up from the net profits of the Bank until the fund amounts 0 not less than the capital. The reserve fund shall be invested inviolably in public securities or those guaranteed by the Government. _ 8 —

PART I II.—BUSINESS OF THE BANK.

1. G e n e r a l R e g u l a t i o n s .

Article 8.

The Bank may carry out the following transactions : (1) Grant long-term loans in cash or in its bonds or debentures, (a) Secured by mortgages on immovable property of any kind, such as land, buildings, factories and works (Articles 10-33) ; (b) Secured by mortgages on ships (Article 34) ; (c) To self-governing bodies on the security of a Government guarantee (Article 40) ; (2) Grant loans for fixed periods of six months to five years on miscellaneous securities (Article 35) ; (3) Accept from the Government or from other institutions or persons, for their own account, the management and collection of funds, as well as of loans to, and other claims against, third parties ; (4) Issue bonds in single series of a m aturity not over twenty years or under five years, either in krones or in foreign currency. The manner, total amount, denominations and dates of the issue of the bonds shall be fixed by the Board of Directors, whose resolutions are subject to confirmation by the Government ; (5) Issue debentures in krones or in foreign currency ; (6) Buy or sell for its own account public bonds or those guaranteed by the Government or, with the consent of the Minister of Finance, bonds of Estonian credit institutions not so guaranteed ; (7) Undertake the sale of its bonds and debentures in the open market for account and by order of borrowers, charging a commission to be fixed by the Bank's Board of Directors ; and (8) Carry out such other operations as may be necessary for the successful transaction of its legitimate business.

Article 9.

The Government will issue general instructions to the Bank regarding the extent of certain classes of business, as well as the scope of its operations by branches of economic activity.

2. Loans secured by Immovable Property.

Article 10.

The Bank grants loans of a maturity not exceeding twenty years secured by mortgages on real property of any kind situated within the boundaries of the Republic, such as land, buildings, works and factories, if these can serve as a hypothecary pledge according to the existing laws. The mortgaged buildings and appurtenances must be insured against fire conformably to the provisions of Part IV of these Statutes.

Article 11.

Loans may be granted up to 50 per cent of the assessed value of the real property to be pledged, with a minimum of Ekr. 500, whereby the Bank is given a prior mortgage on the property as security. Debts, if any, encumbering the real property to be pledged shall be paid out of the loan granted, or all the creditors of the borrower shall permit the Bank to have priority for its claims over the debts inscribed in their name, so that the Bank shall, in the event of the calling-in of the loan, enjoy, in any case, prior rights according to these Statutes. Exceptions to this provision are permitted onlyr in the case of State and municipal taxes and other public burdens, as well as of irredeemable servitudes and burdens, whose value is determined by the Board of Directors—the amount of the loan being correspondingly reduced,

Article 12.

Real property owned by several co-proprietors shall be accepted as a pledge only as an indivisible whole and with the consent of all the owners. 9 —

Article 13.

When applying for a loan on the pledge of real property, the borrower shall address himself in writing to the Bank’s Management, submitting : (1) A copy of the entry in the Register of the Land Registration Office relating to the said real property ; (2) A certificate by the fire-insurance company, recording the valuation of the buildings insured, the date of valuation and the insurance premium ; (3) A detailed plan of the land, buildings, works or factories, evidence as to the amount of State and municipal taxes, and information regarding the activities (of the undertaking) in former years ; and (4) A statement of the required amount of the loan.

Simultaneously, the borrower shall pay a sum to meet the preliminary expenses, according to a tariff fixed by the Board of Directors and published in the State Advertiser. If the applicant’s request is not granted, half the amount will be refunded to him, but not if he receives the loan or fails to take it.

Article 14.

Should the loan be sanctioned, the applicant shall hand to the Bank a bond of indebtedness for the sanctioned amount of the loan, setting forth that : (1) The property to be mortgaged and its appurtenances remain as a pledge to the Bank for the loan received, the interest thereon, and all expenses in connection therewith, including fire-insurance premia ; (2) He is liable to the Bank, in addition, with his whole property up to the final payment of the loan received ; and (3) He unconditionally submits to the provisions of the Bank’s Statutes and the lawful regulations of the Management.

He shall also present an insurance policy covering fire risks on his real property and appurtenances, for an amount fixed according to the provisions of Article 68 of these Statutes.

Article 15.

When the loan is taken, the Management will send the borrower’s bond of indebtedness to the local Land Registration Office for inscription of the mortgage rights and for due endorsement of the bond.

Article 16.

The borrower shall pay to the Bank for the loan, half-yearly in advance, the interest, the amortisation instalment and an amount to cover the Bank’s expenses at the rate fixed by the Board of Directors—the payments being calculated, in the first instance, from the date of the granting of the loan, and subsequently for a complete half-year. An initial charge not exceeding 1 per cent of the loan is made to cover the Bank’s expenses in connection with the valuation of the property and the printing of the bonds. The afore-mentioned sums are payable to the Bank half-yearly in advance on or before ■June 30th and December 31st, in cash, in drawn bonds or in coupons due for payment.

Article 17.

If the loan is granted in bonds, the borrower has the right at any time to repay it in whole or in part, in amounts equal to the smallest denomination of a bond or multiples thereof. The repayment or partial redemption is effected in bonds, with the coupons and talons attached, hcase of full repayment of the loan.it- is permissible to pay in cash any odd amount, if this does ]i,-,t, exceed half the smallest denomination of a bond ; otherwise, the amount shall be Paid with a bond—the Bank refunding the difference in cash. Loans granted in cash may at anY time be also repaid in cash.

Article 18.

If the debtor does not make his payments to the Bank, including insurance premium, on due date, the Bank shall impose a fine at the rate of 1 per cent per mensem of the amount 1 Ue part of a month being reckoned as a full month ; if they are not discharged within Ihree months, the Bank shall proceed to collect the amount due, together with all expenses. — 10 —

Article 19.

The Bank may extend the payment of debts or other obligations only in case the borrower is in temporary difficulties owing to fire or other disaster. In such cases, and also in that of the death of the owner of the real property, the Board of Directors may extend up to three years the term of the next two payments due, dividing them into equal half-yearly instalments and may reduce, or wholly remit, the fine for the delay.

Article 20.

If the borrower has not paid his dues during the periods prescribed in Articles 18 and 70 of these Statutes, and has not applied for a prolongation, or if the Board has refused his application, the Management shall immediately proceed to collect the loan, and for this purpose shall apply to the competent Court to have the pledged real property put up to public auction, stating the amount of the claim and presenting evidence that, the real property is pledged to the Bank. The Court will decide the matter without summoning the debtor, merely on the notice of the Bank, and will have the real property put up for sale in the manner laid down in Articles 1845 to 1888 of the Civil Procedure Code, taking into consideration the special provisions of these Statutes. If the Management so requests, the Court will also arrange for the income from the real property to be placed under distraint without waiting for the term prescribed in Article 1861 of the Civil Procedure Code. The provisions of this and the following articles do not restrict the Bank’s right, according to the general laws, to collect its loan also from any other real or movable property 4 the debtor.

Article 21.

If the borrower is declared bankrupt, or if the other creditors demand a public auction of the real property pledged to the Bank, the competent Court or bailiff shall notify the Bank accordingly. The claims of the Bank, secured by mortgages on real property, are to be satisfied apart from the bankruptcy proceedings. The Bank must, previous to the date of sale, notify to the competent Court its total claim, as well as the assessed value of the property to be sold. The notice must be accompanied by a certificate of the Land Registration Office that the real property to be sold by auction is pledged to the Bank as security for its loan.

Article 22.

Out of the proceeds of the sale of the pledged property there shall be paid, before satisfying the B ank’s claims, the wages and health-insurance payments of the workmen and servants, as provided for in Article 1890 of the Civil Procedure Code.

Article 23.

The bailiff shall notify to the owner the amount of the Bank’s claim and the application to hold a public auction. He shall perform all acts prescribed in Articles 1095 and 1849 of the Civil Procedure Code without waiting for the term provided for by the said articles- The announcement regarding the public auction, and all other arrangements therefor, snail be made whether there is anv agreement between the two parties regarding the time and manner of the auction or not.

Article 24.

The real property to be sold by auction shall be attached and valued by the ba: onlv if so requested by the Management of the Bank. The Management has also the right to demand the seizure of the debtor’s movable property, and its sale simultaneously with his real property and its appurtenances.

Article 25.

The public auction shall be notified in the Stale Advertiser at least two months b e f o r e the appointed date. If no valuation was made under Article 24, the notice must contain, besides the date required by Article 1147 (1) to (3), (6) and (8), and Article 1869 of the Civil Procedure Code, also the assessed value of the real property on which the loan was granted. — 11 —

Article 26.

The borrower has the right to pay his debt, including fine and expenses incurred by the Bank on his account, before the commencement of the auction, or if this has no result, before the second auction, and thus free the property from sale.

Article 27.

After receiving from the bailiff the notice regarding the putting up of the real property to public auction, the Management of the Bank shall notify the competent Court of any changes in the particulars mentioned in Articles 20 and 21 of these Statutes, or which may occur between the presentation of the final account and the date of the sale.

Article 28.

No matter on whose demand the auction is held, the bidding for the real property pledged to the Bank shall, at the first auction, always start, at lowest, at an amount calculated to cover the debt registered in favour of the Bank, including all claims to date for interest, insurance premia, fines, court fees, and expenses in connection with the sale, as well as all State and municipal taxes and liabilities which have preference over the registered debt of the Bank. Any person desirous of taking part in the bidding must deposit 10 per cent of the initial bid as security. If the highest bidder fails to pay the purchase money, including legal fees, within the time provided for in Article 1874 of the Civil Procedure Code, the money deposited or collected shall be used, in the manner prescribed in Article 1890 of the Civil Procedure Code, in payment of liabilities, court fees, and expenses of sale which have preference over the Bank’s claim according to the Civil Procedure Code, of other expenses incurred by the Bank on the account of the debtor, and in partial repayment of the amount due to the Bank.

Article 29.

Should the first auction yield no result, a second auction shall be held not earlier than one month thereafter, which must, be specifically announced in the Stale Advertiser at least three weeks previously. If the sale takes place on the demand of the Bank, the second auction must start at an amount covering at least the claims having priority to those of the Bank : otherwise, the bidding must start at an amount not less than that provided for in Article 1885 of the Civil Procedure Code. Persons wishing to take part in this bidding must pay in a deposit equal to that at the first auction, and this is to be dealt with as prescribed for the said auction. At the second auction the Bank may bid. but only up to an amount covering its own claims and those having priority thereto. In any case, at the second auction, the property put up for sale will be definitely assigned to the highest bidder.

Article 30.

The buyer must settle the Bank’s claim at the office of the Bank within fourteen days (if the price bid is not less than the amount fixed according to Article 28), unless the Management of the Bank consents to transfer to his name the whole or a part of the debt encumbering the real property. As evidence of the settlement of the debt, the Bank shall issue a special certificate to the buyer for presentation to the Court. In this certificate there shall be precisely stated the amounts transferred and paid, so that the Court may deduct them from the purchase price.

Article 31.

If the claim of the Bank is not fully covered by the sale of the real property, the Management shall take immediate steps to satisfy the claim from other property of the debtor.

Article 32.

In case the real property pledged as security comes into the possession of the Bank (Article 29), the Management shall endeavour to sell it without loss to the Bank, and in the meantime to obtain some income from the property. Its sale must be effected not iater than two years after it. has been registered in the name of the Bank. This period may be extended in individual cases for a further two years, with the approval of the Government on each occasion. The Bank may not keep such property except in cases where it is indispensably necessary for the conduct of the business of the Bank, and where the decision to keep it is taken in conformity with Article 79 (3). In case of purchase, the Bank shall be exempt from registration fees and stamp duty if it sells the acquired property within two years of its being inscribed in the Bank's name, or "within four years if the Government has extended the period in accordance with the first Paragraph of this Article (32). — 12 —

Article 33.

Additional loans on real property, already burdened up to the limit prescribed in Article 11, may be granted only in cases where, on a new assessment, the value of the property and appurtenances has increased, or where at least one-fifth of the original amount of the debt has been paid.

3. L oans ag a in st P l e d g in g of S h ip s .

Article 34.

The Bank grants loans against mortgages of Estonian ships, effected inaccordance with the provisions of the Law for Registration of Ships. In granting such loans, the provisions of these Statutes regarding loans secured on real property shall apply, with the following modifications and additions :

(1) The amount of the loan shall not exceed 50 per cent of the assessed value in the case of steel ships, and 40 per cent in that of wooden ships ; (2) The duration of the loan shall not exceed fifteen y7ears for steel ships, and ten years for wooden ships ; (3) The pledged ship must be insured against accident or loss, and the insurance policy or covering certificate handed over to the Bank. The debtor must notify the Bank in case of damage ; and (4) When applying for the loan, there shall be presented a copy of the entry in the Registration Office regarding the vessel, information as to its price, and any other documents specified by the Board of Directors of the Bank.

4. L oans a g a in st V a r io u s S e c u r it ie s .

Article 35.

The Bank may grant fixed-term loans (Article 8 (2)) against the following securities : (1) Fixed interest-bearing public securities or those guaranteed by the Government, or approved by the Minister of Finance as sufficiently secure, up to 80 per cent of their market value ; (2) Precious metals and articles made therefrom, up to 80 per cent of the value of the metal ; (3) Bills and bonds of indebtedness secured by goods, materials, agricultural plant and other movables, up to 60 per cent of their value. Imaginable divisions of movable property7 of co-owners cannot be accepted as security ; (4) Bills and bonds of indebtedness secured by7 mortgages, provided these latter, together with prior mortgages, if any, do not burden the property7 concerned to an extent greater than 50 per cent of its assessed value ; (5) Guarantees of such credit institutions as are approved by the Minister of Finance ; (6) Bonds of indebtedness of co-operative credit institutions, which are secured by similar bonds signed by members who have received loans from institutions and which are guaranteed by at least two solvent persons, subject to the proviso that loans to individual members shall not exceed two thousand krones, and those to member co-operatives five thousand krones. The co-operative credit institutions may, with the permission of the Bank, change the bonds of indebtedness serving as security7, when necessary ; and (7) Bills and bonds of indebtedness bearing, besides the signature of the drawer, the endorsement or guarantee-endorsement of at least two solvent persons, provided that no loan to any individual shall exceed two thousand krones.

Article 36.

The Bank may also grant fixed-term loans (Article 35). redeemable by instalments—the interest on the debt being calculated for the time the money is actually7 at the disposal of the borrower. — 13 —

Article 37.

The Bank may not grant loans on the miscellaneous securities enumerated in Article 35 1) to (7) from its capital or from funds transferred to it out of the State Foreign Loan of 1927.

Article 38.

The movables pledged to the Bank in conformity with Article 35 (3) of these Statutes may remain in the possession of the debtor to keep and to use ; changes in the component parts and value of the movable property may only be made with the consent of the Bank, In such cases, an announcement shall be inserted in the State Advertiser, at the expense of the debtor, regarding the pledges and their release, and a notice to that effect put up in a conspicuous position within the place or room where the pledged property is kept ; corresponding labels shall be affixed to individual objects, if possible, to indicate that they have been pledged". Pledged movables in regard to which all the above-mentioned formalities have been complied with are considered to be “ dead-pledges ” (Faustpfand), and these cannot be seized in satisfaction of claims of third parties, nor can they form part of the bankrupt's estate, if the debtor is declared insolvent, before the Bank’s loan, including interest and other additional liabilities, is paid. The alienation of pledged movables and the pledging of them to other persons are void if the objects were duly labelled as such, or if the alienation took place in a room or place where the relative notice was put up. A debtor, his proxy or servant who alienates or pledges, without the permission of the Bank, the pledged property left in the possession of the debtor shall be punishable, as prescribed by law, for dispersing and appropriating property7 in trust.

Article 39.

If the value of the pledged property diminishes, the debtor shall present additional securities for an equal amount or repays a corresponding part of the loan. If this is not done, or if the loan or the due part of it is not paid at date, the Bank shall immediately proceed to collect the loan. To this end the Bank is entitled, at its discretion, for the purpose of the collection, either to sell the pledged property7 or, if it sees fit, to recover the debt from other property7 of the debtor. By the adoption of one course of action, the Bank does not lose the right to take the other course later. The sale of pledged movable property shall be effected by order of the Management without recourse to the Court. Property which is not quoted on the Exchange shall be sold by public auction, whereas goods so quoted may be sold by the Management without an auction, on the basis of the quotation. If the amount realised from the sale is in excess of the claim of the Bank, the surplus shall be credited to the debtor’s account. fhe debtor has no right to make claims against the Bank for losses incurred owing to delay in selling the pledged property7, or to the Bank’s choice of date and place of sale.

Article 40.

The Bank may7, on the guarantee of the Government, grant loans to self-governing bodies in debentures or out of the proceeds of the same (Article 61 (2)), for periods up to twenty years.

5. A dministration of F u n d s a n d L oans on A ccou nt o f t h e G o v e r n m e n t .

Article 41.

Loans and claims transferred from the Eesti Pank to the Government, in conformity with Article 82 of the Eesti Pank Statutes, shall be handed over to the Bank for administration, together with all securities and documents. In dealing with the loans and claims so handed over, the Bank shall appear before third parties with all the rights and obligations, in so far as they7 are not modified by these Statutes, which belonged to, or might belong to, the Eesti Pank. and which arise out of these loans and claims as well as from the securities behind them and the lease and other contracts connected therewith. The Eesti Pank shall, where necessary, convey by deed the documents relating to the above loans and claims directly7 to the name of the Bank. The consent of the contracting parties—the debtors and the guarantors—is not required for the transfer. The transfer deeds ajid endorsements are exempt from stamp duty7, — 14 —

Article 42. The Bank has the right to take over loans and claims from the Government account to its own account, on the securities and in the manner prescribed by these Statutes, paying to the Government a corresponding sum in its debentures (Article 61 (1)) or in cash ; the Bank may also grant fresh loans against authorised securities, in clearance of the Government account. If the Board of Directors of the Bank considers a loan or claim to be adequately secured, and the business of the borrower to be in a sound condition, it has the right to decide to take over the loan or claim from the Government account to that of the Bank, even if the existing securities and any supplementary ones which the borrower may be able to present, or the ratio between the value of the securities and the amount of the loan, do not conform to the provisions of these Statutes. In such case, however, the Bank and the borrower must agree specifically as to the date by which the latter shall present additional securities, in order that the ratio prescribed by these Statutes, between the value of the securities and the amount of the debt, shall be established. If the debtor does not adhere to the agreed date, the debt, or the part of it. must be collected. Article 43. If the Bank does not find it possible to take over on its own account a particular loan or claim from the Government account, or to grant a new loan in full settlement of that of the Government, against the existing securities and any supplementary ones which the debtor may be able to present, he shall be given the opportunity, within a time to be fixed by the Bank, to propose a financial institution which is prepared to take over the debt In such case, the Bank may, upon the request of the financial institution taking over the loan, if it considers the position of the institution to be satisfactory, grant it a loan against securities which comply with the provisions of these Statutes ; in case of need, the Bank may allow the relaxations mentioned in Article 42 in regard to the securities. The repayment of the loan shall be effected, at latest, within twenty years by annual instalments.

Article 44. Loans and claims not taken over, by the Bank or by other financial institutions shall remain under the management of the Bank for account of the Government, together with all securities. The Bank must endeavour, in the first place, to ascertain whether the enterprises to which the said loans appertain still possess vitality. If it appears that an enterprise cannot he so regarded—being overburdened with debts or for some other reason—the Bank shall be obliged to proceed immediately to liquidate the loan. The liquidation shall be effected according to a fixed scheme, with a view to saving the State from loss. . If it is not possible to find a purchaser for the property of the enterprise in liquidation, the Bank may, with the express permission of the Government, acquire the property for the time being on behalf of the State. It will be the duty of the Bank to manage acquired properties, taking care that their value does not diminish, and, with the consent of the Government, to sell them when a purchaser is forthcoming. Article 45. If the Board of Directors of the Bank takes the view that the difficulties of the position of the enterprise are of a temporary nature, the Bank may, with the express permission of the Government, defer the liquidation of the loans or claims wholly or partly. The permission of the Government is to be given for not more than one year, separately for each enterprise, and the Government may, after consideration of the Bank’s report regarding the enterprise, renew the permission, if necessary, for not more than one year each time. If the enterprise has not been able within five years to develop to such an extent that the Bank or some other financial institution deems it possible to take over the loan or claim in question on its own account, and particularly if the enterprise is not able to pay the interest on its debt regularly, the Bank shall proceed to liquidate the loan or claim in the manner set forth in the preceding Article. Article 46.

The management and sale of securities of loans or claims taken over for administration on the strength of Article 41. and sums received from these securities, are subject I- the provisions of Articles 20 to 32, 69 and 70 of these Statutes. Pledges of movable property serving as security for loans taken over for management are subject to Articles 38 and 39 of these Statutes. The Board of Directors of the Bank shall decide, on the basis of the general instructions of the Government, the arrangements for insuring the pledges securing the administered i>»ans against fire and other damage, as well as the conditions of the loans and the mann r of administering them. The Bank has the right to permit the renewal and exchange of existing securities agams ■ others of not less than the same value. The writing-off of irrecoverable debts and claims, as well as agreements with debtors and guarantors regarding the reduction of interest an principal for the purposes of rehabilitation, shall be decided by the Board of D ire c to rs of t e Bank, subject to confirmation by the Government. - 15 —

Article 47.

The Bank may pay to the Government in its debentures (Article 61 (1)) the sums received in payment of loans and claims taken over for administration in accordance with Article 41 of these Statutes, to an amount and subject to such conditions as are fixed by the Government.

Article 48.

On the proposal of the Minister of Finance, the Government has the right to hand over to the Bank for management other claims and funds of the State, subject to conditions to be decided by the Government.

Article 49.

In managing the loans and claims taken over for administration, as well as the corresponding securities, and in selling the securities, the Bank shall act in its own name, but for account of the Government. The Bank is not liable with its assets for these claims, and the accounts of the transactions shall be kept separately from those of other transactions of the Bank. The Bank will receive such remuneration for the management of the loans, claims and funds taken over for administration, in accordance with the preceding articles, as may be fixed by the Government.

Article 50.

The Bank shall submit to the Government annually a full report on each managed loan, on dates prescribed by the Government.

6. B o n d s a n d D e b e n t u r e s o f t h e B a n k .

Article 51.

The bonds issued by the Bank must be fully secured by mortgage deeds on pledged real property (Articles 10, 11 and 14) and on ships (Article 34) of at least the same nominal value and the same rate of interest. If the cover has diminished through repayments or for other reasons, and the immediate withdrawal from circulation of a corresponding amount of bonds is not feasible, the Bank must keep, instead of the wanting mortgage deeds, a corresponding sum in cash or in the bonds mentioned in Article 8 (6). With the permission of the Government the Bank may temporarily, until mortgage deeds can be procured, issue bonds which are secured by either cash or the bonds mentioned in Article 8 (6). The aggregate of bonds in circulation, and of the debentures mentioned in Article 61 of these Statutes, shall not exceed ten times the total of the capital and reserve funds of the Bank. Article 52.

The bonds are to be issued consecutively numbered, and to bearer, with interest dates January 2nd and July 1st. On the demand of holders, the bonds may be registered in their names. Coupons and bonds to bearer change hands by simple delivery, while, in the case of registered bonds, the transfer entries have to be made by the Management of the Bank.

Article 53.

The rate of interest of issued bonds can be changed only with the assent of the Minister of Finance—the Management of the Bank publicly announcing, at least six months before the conversion, that the holders of the bonds have to present them to the Bank on the date Mentioned in the notice, and to state whether they agree to exchange their bonds on the date of conversion for bonds bearing a lower rate of interest, or whether they wish the nominal amount of the bonds to be paid to them in cash.

Article 54.

From the date mentioned in the announcement, the bonds shall cease to bear interest. They shall be withdrawn from circulation, cancelled and paid if presented within ten years, after which date they will be regarded as lapsed and forfeited to the Bank. — 16 —

Article 55.

The payment of the nominal value of, and the interest on, bonds is guaranteed by mortgages of the pledged real property and ships, by payments by the debtors to whom loans have been granted against the pledging of real property and ships, and, if these are not sufficient, then —ranking equal with other liabilities of the Bank—by the whole of the Bank’s assets. The mortgages of immovable property and ships pledged to the Bank, which serve as security for the issued bonds, may be used to meet other liabilities of the Bank only if all the bonds are redeemed, or if the sum required for their payment is set apart in cash or in public securities or those guaranteed by the Government.

Article 56.

The withdrawal of bonds from circulation, to be undertaken by the Management of the Bank, shall be effected once a year in December, by drawings, and the nominal value of the drawn bonds will be paid within ten years, beginning from the following July 1st, after which date the bonds will be regarded as lapsed and forfeited to the Bank. The bonds drawn cease to bear interest from the date fixed for their redemption. They must be presented for repayment with all coupons for the preceding period attached—otherwise the value of the missing coupons will be deducted from the amount repaid.

Article 57.

The bonds, with a coupon-sheet for ten years and its renewal talon, shall be printed in the form sanctioned by the Minister of Finance, whereon the denomination, rate of interest, date of issue and project of amortisation are noted. The bonds shall bear the signatures of the President and of two Managers, and will be bound in a book and cut out in consecutive order. Article 58.

The Bank shall redeem every year, by drawings, bonds of corresponding series of a nominal amount equal to not less than the amortisation payments made by the debtors and the amounts of loans repaid before due date, and shall also cancel bonds acquired by it. Bonds drawn for redemption and cancellation will be paid by the Bank on presentation.

Article 59.

The drawing and destruction of bonds shall take place publicly, in the presence of three representatives of the Bank and one of the Ministry of Finance.

Article 60.

A list of the numbers of the drawn bonds shall be published in the State Advertiser, mentioning the date when interest payments will terminate. These lists will also be procurable at the Bank.

Article 61. The Bank hasethe right to issue debentures : (1) Of a maturity up to July 1st, 1967, against the portion of the Foreign Loan received by the Bank, less the amount destined to serve as its capital (Article 6). and also against the loans and claims of the Eesti Pank transferred by the Government and taken over by the Bank for its own account ; these debentures are exempt from stamp duty ; (2) Of a maturity up to twenty years, for the granting of the loans m entioned in Article 40 of these Statutes and for other transactions admissible by th e said Statutes ; (3) Of a maturity up to five years, for the granting of the loans mentioned in Article 35 ; the amount of the last debentures in circulation is not to exceed the total of the capital and reserve funds of the Bank.

Article 62.

All the debentures issued under subsections (1) and (3) of the preceding Article (61) n ru s t be fully covered by loans secured either by mortgages of real property (Articles 10, 11 and 13), or of ships (Article 34), or by the miscellaneous securities mentioned in Article 35 of these Statutes. The debentures issued under sub-section (2) of Article 61 must be fully covered by the o-uarantee of the Government. If the cover is reduced through repayments of loans or for other reasons, and if the immediate withdrawal from circulation of a corresponding amount of debentures is not feasible, the Bank must hold, instead of the wanting securities, a corresponding amount of cash or of the bonds mentioned in Article 8 (6) of these Statutes.

Article 63.

The interest and amortisation charges on debentures issued to the Government in payment (Article 61 (1)) will be fixed at the same rate, and will be payable on the same dates, as for the State Foreign Loan of 1927. The Government is empowered to reduce the above-mentioned rate of interest if it deems this necessary in the interest of the economic life of the country—taking into consideration the position of the money market. These debentures are subject to the provisions of Articles 52 to 54, 56, and 58 to 60 of these Statutes. Article 64.

The due dates for the coupons, the procedure for amortisation and conversion, and other conditions applying to debentures issued on the guarantee of the Government (Article 61 (2)), are fixed at the time of issue by the Board of Directors of the Bank, subject to confirmation by the Government. Article 65.

The short-term debentures (Article 61 (3)) may be inscribed or to bearer, and with or without coupons. The payment of interest, the procedure for amortisation and conversion, and other conditions applying to these debentures are fixed at the time of issue by the Board of Directors of the Bank, subject to confirmation by the Government,

Article 66.

Persons guilty of forgery of bonds and debentures will be punished, as prescribed by law, for the forging of monetary tokens.

Article 67.

The bonds and debentures of the Bank may be accepted as security for all contracts concluded with, and obligations to, State institutions. They may also be utilised for the investment of funds of orphans, trustees, institutions of self-governing bodies and of societies.

PART IV.—CUSTODY OF PLEDGED REAL PROPERTY AND INSURANCE OF PLEDGES AGAINST I,OSS.

Article 68.

All real property and appurtenances pledged to the Bank, and other property which might be destroyed by fire or other cause, must be insured against loss, in the Bank’s name, in insurance companies regarded by the Bank as reliable. The insured amount must be at least 50 per cent higher than the Bank’s loan, or up to double the amount thereof, if the Board of Directors so decides. If the borrower does not present a renewal receipt to the Bank at least fifteen days before the expiry of the policy, the Bank will insure the pledged property lor account of the borrower, who must pay the cost not later than at the time the next payment is due on the loan. Otherwise the Bank will proceed to call in the whole loan.

Article 69.

The borrower must always keep in good order the real property pledged to the Bank, and must carry out, within the time fixed, such necessary repairs to buildings as are demanded by the Management or its representative. The borrower shall also produce evidence to show that the insurance company is fully liable during the repairs. The Bank will supervise the fulfilment of the requirements mentioned in the previous paragraph, through the Assessing Commission, which must inspect the pledged property at least once a yrear and submit a report thereon. — 18 —

Major rebuildings of pledged property may only be undertaken with the consent of the Bank ; otherwise the Bank has the right to prohibit them and to call in the loan.

Article 70.

If it appears that the value of the pledged property has diminished in comparison with the valuation at the time of granting the loan, the Management of the Bank may demand from the borrower additional securities or may call in a part of the loan before its maturity, If the debtor does not repay the part of the loan demanded by the Management within the time fixed, the Management has the right to proceed to collect the whole loan in the manner provided for in Article 20 of these Statutes.

Article 71.

In case of fire or other damage, the insurance company will pay the Bank for the loss sustained on presentation of the insurance policy.

Article 72.

If the pledged property is entirely destroyed, or if the remaining part does not secure the loan, the whole debt, or a part of it, will be covered by the amount received on the insurance policy.

Article 73.

If the part of the property untouched by the damage fully covers the loan of the Bank, and if it "is immediately insured against damage in conformity with the provisions of Article 68. the Bank may release to the borrower-owner the amount paid by the insurance company.

Article 74.

If the insurance company is not liable for the damage, by the terms of its statutes and the conditions of the insurance policy, the Bank may proceed to collect the loan and to seii the pledged properties for this purpose.

PART V.—ASSESSMENT OF PLEDGED PROPERTY.

Article 75.

The valuation of property to be pledged to the Bank shall be made on the basis of the data supplied by the owner, and in accordance with the instructions for valuation prepared by the Management of the Bank and sanctioned by the Board of Directors. The Assessing Commission, together with experts called in to attend, if necessary, shall inspect on the spot the property to be pledged, compare its valuation with that of the fire- insurance company, make a note of the differences and draw up a full and detailed description of the property on the form prescribed in the instructions. This description will also serve as the basis for future inspections.

Article 76.

At the valuation, the income from the land, buildings, works, factories and ships shall in the first place, be taken into account, as set forth in the annual reports and other information, and the Assessing Commission will assess it with the help of the experts. In addition, the realisation value of the land, buildings, works, factories and ships, and other income which the applicant for the loan receives or might receive from the real property, will be taken into consideration.

Article 77.

The said information, checked in the afore-inentioned manner, together with the full description prepared as laid down in the instructions, the valuation, and the resolution of the Assessing Commission, shall be submitted to the Management of the Bank, which will lay them before the Board of Directors, with its own opinion, for approval. The latter may decrease the assessed value, refer it back for revaluation or refuse to grant the loan, but it may m no circumstances increase the assessed value contrary7 to the resolution of the Assessing Commission. 19 —

PART VIy»=—MANAGEMENT OF THE BUSINESS OF THE BANK.

Article 78.

The Bank shall be subject to the Government, through the Minister of Finance. The treneral management of the affairs of the Bank is in the hands of the Board of Directors, consisting of the President, nominated by the Government for a period of five years, his Deputy, and seven other Directors, nominated by the Government for three years on the proposal of the Minister of Finance. If a Director retires before his time, a new one shall be appointed in the same manner to fill his place for the remainder of his term of office. During the first two years, three Directors, chosen by lot. shall retire every year, after which the Directors shall retire in accordance with their length of service. Betiring Directors may be renominated. The Directors are responsible for the performance of their duties in like manner to State officials. They receive no salary, pension or subsistence money. Their daily allowances, and the travelling expenses connected with the performance of their duties, as well as remuneration for attendance at Board meetings, shall be fixed by the. Government on the proposal of the Minister of Finance.

Article 79.

A quorum of the Board of Directors shall be constituted when not less than five Directors and the President or his Deputy are present. Decisions will be adopted by a simple majority of votes. In case of equality of votes, the President shall have a casting one. If the President disagrees with any resolution, he has the right to suspend its operation and submit it for decision to the Government through the Minister of Finance. The Board of Directors is empowered to deal with the general conduct of the Bank’s business in accordance with these Statutes, and specially with the following matters : (1) Approval of valuations of properties to be pledged ; (2) Decisions regarding the granting of loans, and the extension of payments due, on the lines laid down in Article 19 ; (3) Decisions concerning the acquisition and disposal of real property ; (4) Decisions regarding the printing, issue, drawing and cancellation of bonds, as well as the issue of debentures ; (5) Fixing the rate of interest on loans, bonds and debentures, subject to the sanction of the Minister of Finance ; (6) Decisions regarding the conversion of bonds and debentures ; (7) Collection of amounts outstanding from defaulting debtors, and decisions concerning the sale of real property by public auction ; (8) Questions regarding the management and realisation of real property acquired by the Bank ; (9) Writing off of irrecoverable loans and claims ; (10) Passing of the annual reports and budgets of the Bank, and their submission • to the Government for approval, through the Minister of Finance ; (11) Submission to the Government of proposals regarding the division of the net profits of the Bank ; (12) Submission to the Government of proposals concerning the appointment and dismissal of the Managers of the Bank, and the election of members of the Assessing Commission and the fixing of their remuneration ; and (13) Consideration of, and decisions on, all matters connected with the management of the Bank, and the issue of instructions to the Management on questions relating to the conduct of the Bank’s affairs and business.

Article 80.

The Board of Management of the Bank shall consist of the President, referred to in Article 78, and of two Managers. The Management is responsible to the Board of Directors. Appointments and dismissals of the Managers of the Bank are proposed to the Government b} tne Board of Directors, through the Minister of Finance, and one Manager shall be nominated by the Government, on the proposal of the Board of Directors, to be the Deputy of the Resident and at the same time a member of the Board of Directors. The salary of the President of the Bank shall be fixed by the Government at the time of appointment. Article 81.

The Management administers the funds, and conducts the activities and current business °f the Bank, in accordance with instructions issued by the Board of Directors. — 20 —

The Management shall represent the Bank without special authorisation before third parties. Meetings of the Management are held as often as required, the President or his Deputy taking the chair. A majority of the Board of Management present will form a quorum Decisions are adopted by a simple majority of votes, the President having a casting one in case of equality of votes. If the Chairman (the President or his Deputy) disagrees w ith any resolution passed by the meeting, he may suspend its operation and refer the matter to the Board of Directors for decision.

Article 82.

The Management shall make a detailed report every month to the Board of Directors regarding the activities and the position of the Bank, and shall submit its opinion on all matters referred by it to the Board of Directors.

PART VII.—ASSESSING COMMISSION.

A rticle 83.

The Board of Directors shall elect every year an Assessing Commission, working under the direction of one of the Managers nominated for the purpose by the Board. The function of the Assessing Commission is to value properties to be pledged, conformably with the instructions sanctioned by the Board of Directors. The Commission shall submit a report of its activities to the Board of Directors, at the same time as the annual report of the Management. The decisions of the Assessing Commission are made by a simple majority of votes. The Commission may invite, through the Management of the Bank, experts to assist at valuations.

PART VIII.-BUDGETS, REPORTS AND AUDIT.

Article 84.

The budget of the Bank will be prepared by the Management, and after being sanctioned by the Board of Directors, it will be presented to the Government for approval, through the Minister of Finance. Supplementary allotments are to be sanctioned in a similar manner. The annual report of the Bank, prepared by the Management and passed by the Board of Directors, will be presented to the Government for approval, through the Minister of Finance, and to the Parliament for information, as a supplement to the State Budget, At the same time, the report will also be submitted for audit to the State Controller, who will report on it to the Government within one month.

Article 85.

The Management will publish the monthly balance-sheets and the annual report, for general information. Article 86.

The State Control has the right to audit the Bank’s cash, other valuables, and property, and to enquire into the economical management of the Bank. When auditing the annual reports, and also when necessity arises in other cases, the State Control is empowered to ask the Management and the Board of Directors of the Bank for information and explanations, as well as for books and documents for inspection. The procedure and manner of the audits are prescribed by the State Controller in agreement with the Minister of Finance.

Article 87.

The system of account-keeping and of drawing up reports shall be approved by the Minister of Finance in agreement with the State Controller.

Article 88.

The net profits of the Bank are to be appropriated as folloyvs : (1) Not less than 10 percent to the Beserve Fund, until this has reached the amount provided for in Article 7 of these Statutes ; and (2) An amount sufficient to meet the interest and amortisation payments of the portion of the State Foreign Loan of 1927 which serves as the capital of the Bank. The balance is allotted to the State revenue. PART IX.—STAFF OF THE BANK.

Article 89.

The classes of employees of the Bank and their respective salaries arc fixed by the Government, on the proposal of the Board of Directors.

Article 90.

The Managers and Staff of the Bank are not regarded as State officials, but they are responsible for the performance of their duties in like manner as State officials, and are entitled to pensions and gratuities on the scale provided for in the Law for Pensions to Government and Municipal Employees.

Article 91.

The officials of the Bank are to be appointed and dismissed by the Management of the Bank.

PART X.—WINDING-UP OF THE BANK.

Article 92.

The Bank is established for an indefinite period. A special law will be passed for its liquidation.

PART XI.—FINAL PROVISION.

Article 93.

These Statutes shall come into force on their publication in the State Advertiser. — 22 —

Appendix III.

NOTE BY THE ADVISER TO THE EESTI PANK ON THE BANKING AND ECONOMIC SITUATION OF ESTONIA.

The banking and currency situation in Estonia, which the scheme elaborated by the Financial Committee of the League was designed to ameliorate, was briefly as follows. Tli? assets of the Eesti Pank, the whole of the capital of which was owned by the State, included a mass of illiquid loans, mainly to industry, while, on the other side of the account, was a single item of large size, comprising about 29 per cent of the total liabilities, representing the equivalent of the gold made over to the Bank by the Government in past years to enable it to support the exchange value of the Eesti mark. This was part of the gold received from the Soviet Government under the' terms of the Peace Treaty of February 1920. The Bank had the right to issue notes up to a certain limit, but not the exclusive privilege, as nearly half the total value of the paper money in circulation consisted of Treasury notes—each issue having its own backing of gold and foreign exchange. The main problem, therefore, so far as the Bank was concerned, was to devise means to enable it both to rid itself of its frozen assets and to repay its debt to the Government in respect of the deposit item referred to. which constituted a liability the Bank would have been quite unable to meet in any" reasonable length of time, it called upon to do so. It was accordingly proposed that the Government should take over, and pay for. the frozen assets, and transfer them for eventual liquidation (so far as that might be possible) to a mortgage institution to be created for the purpose, and also that the Treasury notes should be amalgamated with those of the Bank, which would be constituted the sole note-issuing authority. The gold held by the Government as backing for its notes was, at the same time, to be made over to the Bank—the balance of the Bank’s liability', in connection with this transfer, being met by a corresponding cancellation of its debt to the Government. Figures showed that, if this were done, and the remaining balance of the Bank’s debt cancelled in payment by the Government of a portion of the frozen assets to be taken over, a further sum of about Ekr. 18 millions (£1 million) would be required to settle the account, Provision had likewise to be made for the working capital of the mortgage institution. It was therefore arranged that a foreign international loan should be raised under the auspices of the League, providing the net effective sum of £1.850,000 mentioned in the Trustee’s report, and the whole scheme came into operation on January 1st, 1928. The effect has naturally been to transform completely the position of the Eesti Pank. which has received, in addition to its own holdings, not only the Ekr. 5 millions of gold made over to it by the Government in connection with the transfer of the Treasury note issue, but Ekr. 18 millions (£1 million) of liquid foreign exchange in place of an equivalent value of frozen assets. At the same time, the debt of the Bank to the Government in respect of the special deposit previously referred to has been cancelled, with the exception of about Ekr. 2 millions, which remain a current liability of the Bank. The result is that the reserve against all siglii liabilities (notes and deposits) is now over 61 per cent, held entirely in gold and liquid gold exchange—thus ensuring the immediate convertibility of its notes into gold at the centres where the reserve is held. Furthermore, as a consequence of the amendment of its Statutes, the Bank is working on the lines of a modern Central Bank of Issue, and, while engaging m commercial transactions of a short-term nature only, in conformity with its constitution, i? gradually establishing itself as the bankers’ bank of the country,instead of competing with the private banks for every class of business offering. This new outlook is, on the whole, approved by public opinion in Estonia, which is beginning to appreciate the difference in the functions of the Central Bank, the private commercial banks, and the special mortgage institutions with which the countryr is now fairly fully provided. These comprise, in the first place, the recently created National Mortgage Bank of Estonia, which has taken over the long-term loans of the Eesti Pank and grants similar loans of ik own to industry and agriculture, besides making advances for shorter periods up to fi'c years on various securities including, to a limited extent, personal bonds of indebtedness. There are also the Estonian Hypothecary Bank, a sound and old-established institution whie1 grants loans on house property in towns, and the State Land Bank, formed in May l^ b- which is concerned with mortgage loans on agricultural property. As showing the activities of these mortgage institutions during the twelve months ending June 30th last, it may be noted that, in the case of the Land Bank, the loans issued on its own account rose in the first half of this y-ear by Ekr. 1.2 million against Ekr. 0.8 million in second half of 1927. while the corresponding figures for the Hypothecary Bank of E stonia air Ekr. 0.85 and Ekr. 0.25 million. The only type of loans which has decreased are those made i cash bv the Government in connection with the Agrarian Reform and other purposes and transferred to the Land Bank for administration. In the first half of 1928, these advanced by Ekr 0.10 million, as compared with a figure of Ekr. 2 millions in the last six months of 1927. The heavy fall in this case is due to the policy which the Government is understood to be now following, of reducing, as far as possible, the charge on the budget in connection with these loans and relying for them on the Land Bank and the National Mortgage Bank. This naturally causes the loans of these institutions to increase. There are, of course, no comparative figures available for the National Mortgage Bank of Estonia, which only commenced operations in January last . The total of its own loans on June 30th was Ekr. 4.3 millions, while the balance of loans transferred from the Eesti Pank was Ekr. 25.4 millions, which shows a reduction of Ekr. 1.3 million on the amount of the debts transferred to it at the beginning of the year.

To enable an idea to be formed regarding the general banking situation, figures have been prepared for the private banks of the country for the first six months of 1927 ami the corresponding half of 1928—these similar periods in the two years being adopted owing to the influence which seasonal operations have on the banks’ business. The figures are as follows :

General Situation of the Private Banks.

31.X1I.26 30.VI.27 Difference 31.XII.27 30.VI.2S Difference

Liabilities. Deposits 25,773 30.190 + 4.417 34,375 44,033 + 9.058 Correspondents 7.643 6.881 — 762 10,792 15,400 + 4,608 Passive- loans 11.687 12,765 + 1.078 12.478 12.181 — -297

Assets. Home bills and advances 40,375 42,903 + 2,528 48.852 61.240 + 12,388 Correspondents. . 3.342 5.783 + 2,441 5.294 8.344 + 3.050

This table shows a noticeable growth in the general business of the banks, and some improvement in their position, though it is to be feared that a considerable proportion of their advances are far from liquid. Both deposits and correspondents’ accounts have increased largely, while the passive loans (mainly sums due to the Eesti Pank) were reduced. The heaviest addition was in home bills and advances, the source of which was chiefly the increase of funds placed with the banks by depositors and correspondents. There appears to be no doubt that the enhanced activity of the private banks is a direct result of the reform measures, as they have benefited to some extent by the transfer of deposits from the Central Institution, which has ceased to pay interest, while the latter is no longer competing in certain classes of loan business. The better banks are also now able to obtain foreign credits more easily, °'ving to the general amelioration of the position and the growth of confidence inspired by the stabilisation of the currency. There are. however, still too many private banks, and the amalgamation of the small ones or their absorption by the larger institutions would be beneficial. Fortunately this fact is recognised and one amalgamation took place last year. It is to be hoped that others will follow without undue delay.

The economic position of the country appears to be fairly satisfactory, though it has fortunately to be recorded that the summer this year has been a wet one, with floods in ®tain districts, and that the ripening of the grain has been thereby retarded. It is not yet possible to estimate the harvest, but it is expected that, with a few exceptions, it will be below the average.

, As regards the foreign trade balance, this showed in 1925, for the first time, a small excess °texports, which increased tenfold in 1926 and by a still larger amount in 1927. These exports consist as to one-half of agricultural and dairy products, while those based on timber (including Paper and pulp) and on industrial activities account for the balance in the proportion of 30 to 20. ln Finland and Lithuania, the distribution is more unequal—in the one case timber products comprising over 80 per cent of the whole value of the exports, and in the other, agricultural anrl dairy products constituting about two-thirds.

Certain branches of industry, especially those connected with the manufacture of wood tJU*P' paper and textiles appear to be increasing their production with some rapidity, judging r°m the export figures for these commodities. It is also to be noted that oil-shale, as a fuel. 5 '°ws signs of ousting coal, the imports of which are falling steadily, while a commencement has — 24 — been made with the distillation of oil on a commercial scale, and home-produced petrol is non on the market. On the agricultural side, butter exports have again advanced considerably during the past six months. This is now one of the most important items on the export list As bearing on the industrial situation, it may be noted that a continuous and rapid improvement has taken place during the last few years in the number of strikes and of workmen affected thereby. Thus, in 1921. the respective figures were 53 and 5.156, in 1924 the numbers had fallen to 16 and 1,568, while in 1926 the figures were 14 and 525, and in 1927 only 5 and 218 There appears to be an almost complete absence of friction of a serious type in this country between capital and labour. A feature of the situation which is causing some adverse comment is the stagnation of the population. The small excess of births over deaths is absorbed by emigration—an unfortunate state of affairs in a country numbering about 1,100,000 souls, and with an area slightly larger than that of Denmark but a population only one-third as great. Climatic conditions and soil are, of course, not so favourable here, but these impediments alone should not prevent a reasonable and gradual increase in the number of its inhabitants. The position of the State finances continues to be good. The budget has not only been balanced since 1922, but the closed accounts of the last six years have revealed substantial surpluses of revenue.

Tallinn, August 17th, 1928. (Signed) Walter J. F. Williamson, Adviser to the Eesti Pank,