Parliamentary Assembly

Repayment of the deposits of foreign exchange made in the offices of the Ljubljanska Banka not on the territory of Slovenia, 1977-1991

Doc. 10135
14 April 2004

Committee on Legal Affairs and Human Rights
Rapporteur: Mr Erik Jurgens, Netherlands, Socialist Group

For debate in the Standing Committee — see Rule 15 of the Rules of Procedure


The non-repayment by the Ljubljanska Banka (LB) in Ljubljana, Slovenia, of the foreign exchange deposited with the branches of the LB in Zagreb, Sarajevo and Skopje before the dissolution of the former Socialist Federal Republic of Yugoslavia has caused severe hardship to a large number of ordinary savers. The draft resolution addresses a number of the legal and economic issues involved, which are also the subject of a complaint before the European Court of Human Rights. The Committee does not consider it to be the task of the Assembly to take sides on the legal issues before the Court and makes some proposals to help reach a practical solution.

I.          Draft resolution [Link to the adopted text]

1.         The Parliamentary Assembly is seized of the question of the non-repayment by the Ljubljanska Banka (LB) in Ljubljana, Slovenia, of the foreign exchange deposited with the branches of the LB in Zagreb, Sarajevo and Skopje over a period of more than ten years, between 1977 and 1991, before the dissolution of the Socialist Federal Republic of Yugoslavia (SFRY).

2.         The depositors from Bosnia and Herzegovina, Croatia and “the former Yugoslav Republic of Macedonia”, as successor states of Yugoslavia, claim that Slovenia is liable to repay these deposits because the head-office of LB is and was located in Slovenia. The smaller and larger claims by some hundreds of thousands of depositors total several hundred millions German Marks, including a very high percentage of accumulated interest.

3.         The Assembly is of the opinion that it is not fair to keep the depositors waiting until the legal, economic and political questions have been solved between the successor states which have guaranteed these deposits.

4.         The Assembly welcomes the fact that certain groups of savers have received at least partial compensation from their Governments: those who deposited their savings in LB offices in Slovenia or in “the former Yugoslav Republic of Macedonia” and those who accepted the Croatian Government’s limited offer to transform the savings into Croatian national debt. It considers that similar solutions should be offered to all those whose savings were lost in the collapse of the banking system in the SFRY.

5.         The Assembly does not consider it to be its task to take sides in the legal dispute between Slovenia and some of the savers who deposited their savings in Ljubljanska Banka offices located in other former Yugoslav republics, a dispute which has been brought before the European Court of Human Rights by a group of depositors in Croatia.

6.         The Assembly therefore considers that it is primarily for the Court, and not the Assembly, to decide on the application to the cases in point of the principle of protection against expropriation guaranteed by the European Convention on Human Rights, if the Court regards such claims to be admissible.

7.         If this application is declared inadmissible, one cannot but conclude that the matter of compensation has more elements of a political problem to be solved between the successor states than of an easily definable legal problem. In that case, the Assembly:

i.    appeals to the successor countries of the SFRY to address without further delay the plight of the depositors of hard-currency savings in former Yugoslav banks, many of whom lost access to their modest life savings in the collapse of the banking system of the SFRY;

ii.    proposes to the four countries concerned to set up a collective fund under the auspices of the Council of Europe in order to compensate the depositors for the capital of their original foreign currency savings, possibly with some compensation for inflation, in order to help the savers, who have been deprived of access to their life savings for more than ten years. The fund should be financed by all four governments concerned, in principle proportionately to foreign exchange deposits made on the territory of each of the countries. In negotiating the precise burden-sharing arrangement between the successor countries of the SFRY, due account should be taken of the following factors, to the extent that they can be properly established:

a.    actual hard currency transfers made to the Ljubljana office of Ljubljanska Banka of savings deposited in offices located in other republics and use of such funds for the economic development of Slovenia;

b.    the possibility offered, or not, to Ljubljanska Banka to pursue its banking activities in the other republics after the breakdown of the SFRY, thus making it possible for the LB to recover debts owed by clients for credits given;

c.    the fact that compensation has already been given to depositors by some states and that the claims of these depositors have been taken over by those states;

iii.    invites the European Union to examine the possibility of making a contribution to the collective fund;

iv.    instructs its Committee on Economic Affairs and Development to study the modalities of setting up the above-mentioned collective fund.

II.         Explanatory memorandum

            by Mr Jurgens, Rapporteur

Your Rapporteur wishes to refer to his introductory memorandum (see hereafter: document AS/Jur (2001) 50 of 19 September 2001) and to the Addendum of December 2003 to the introductory memorandum (see below).


Introductory memorandum of 19 September 2001 (AS/Jur (2001) 50

Appendix I

(Programme of visits to Croatia, Bosnia and Herzegovina, Slovenia and FRY

Appendix II (The banking system in FRY – Note by Mr H. du Marchie Sarvaas)

Addendum of December 2003 to the Introductory memorandum

Appendix (Programme of the visit to “the former Yugoslav Republic of Macedonia”)

Introductory memorandum

(AS/Jur (2001) 50 of 19 September 2001)

A.         Problem at issue

1.             The question put before the Assembly is that of the non-repayment by the Ljubljanska Banka (LB) in Ljubljana, Slovenia, of the foreign exchange deposited with the branches of the LB in Zagreb, Sarajevo and Skopje over a period of more than ten years before the dissolution of the Socialist Federal Republic of Yugoslavia (SFRY).

2.             The depositors claim that the head-office of LB should recompense them or that the state of Slovenia, as successor state of Yugoslavia – which originally had guaranteed these deposits – is liable to repay these deposits because the head-office of LB is and was located in Slovenia. The claims by some hundreds of thousands of depositors total many hundreds of millions of D-Marks, including a very high percentage of accumulated interest.

3.             The Bureau has asked the Committee on Legal Affairs and Human Rights for a report on the matter, as questions of a legal nature could have to be answered, such as:

  • the legal position of the “branch-offices’” of LB in Zagreb, Sarajevo and Skopje in relation to the head-office (separate legal entity, or not);

  • the liability of LB under the law of the SFRY for the debts of “branch-offices”;

  • the liability of LB under present law for the debts of “branch-offices”;

  • the status of foreign-exchange deposits under the law of the FYR: was there an obligation of citizens to deposit with banks within the SFRY and was there an obligation of banks to pass on foreign exchange to the National Bank of the SFRY (NBY)?

  • the position of successor states in taking over the assets and liabilities of the SFRY.

B.         Position of the Rapporteur

4.             It has not been easy for the Rapporteur to gather the information necessary to gain insight into the problem at issue. The events which caused the problem took place in a period which ended ten years ago and in which a totally different political, economic and financial system existed. Besides, the elements of information which the Rapporteur received were often completely contradictory, while objective evidence was not always produced. It is clear, also, that those actors in this drama who have strong interests in receiving confirmation of their specific position are not always interested in giving information which would weaken that position.

5.             Thus the conclusions to which this report leads must necessarily be based on a subjective evaluation of all that information which could have some claim to objectivity, and which could be investigated without special privileges for the investigator, and without assistance (apart from the assistance given by the already overburdened secretariat of the Committee on Legal Affairs and Human Rights, and by the kind intervention of Mr Hans du Marchie Sarvaas, an expert in central banking systems, who helped in formulating Annex II).

6.             The basic differences of opinion between LB together with Slovenia on the one hand, and the depositors together with Croatia, Bosnia-Herzegovina and "the former Yugoslav Republic of Macedonia" on the other hand are, as far as the Rapporteur has been able to ascertain, the following:

1. whether the problem of repayment should be solved on the basis of territoriality (the position of Slovenia), by which depositors in banks on the territory of a state are repaid by the banks in that state or recompensed by the governments guaranteeing the deposits as successor states of the SFRY;

2. whether the problem should be solved on the basis of the civil law obligations incurred by LB as head-office of the branch-offices in the other now successor states of the SFRY (the position taken by Croatia, Bosnia-Herzegovina and “the former Yugoslav Republic of Macedonia” in the matter of LB).

C.         Court adjudication

7.             Normally the courts should adjudicate such problems. Court cases have indeed been decided, both in Slovenia against the head-office of LB and the government as guarantor, and in Croatia and in B-H against the governments (in B-H Federation and BiH governments) as guarantors. They have not lead to satisfactory results.

8.             The cases in Slovenia were blocked by special legislation which does not allow for Slovenian courts to take decisions in the matter until the total of the problems between the successor states of the SFRY have been solved.

9.             Besides this, the old liabilities of the LB have been left with the LB which is no longer active as a bank, while the assets have been transferred to a new LB (Nova Ljubljanska Banka). Thus the old LB has no assets to repay depositors outside Slovenia, unless – so Slovenia insists – assets are accorded to Slovenia as a successor state from the assets of the SFRY.

10.         The case in Croatia has not been successful because the branch-offices of LB have in fact, mainly because of government action, not been able to operate since the dissolution of the SFRY. In B-H a case against the government as guarantor of the deposits, has been partially successful.

11.         Croatian depositors have put their case before the ECHR in Strasbourg, essentially on the basis of Article 14 of the European Convention on Human Rights, discrimination (depositors in banks located in Slovenia were compensated by Slovenia, those in banks outside Slovenia were not), and on the basis of Article 1 of the First Protocol (unlawful expropriation). The Court has not yet heard these cases. It is uncertain if it will consider them admissible, considering the fact that the Convention was not applicable in the states concerned at the moment that the problem at issue was created.

D.         Foreign exchange deposits in the SFRY

12.         That many citizens in the four countries concerned have in fact lost in many cases substantial amounts of foreign exchange that they have deposited with banks in the SFRY (not only the LB) is for those concerned often nothing less than a tragedy. They have worked hard as expatriate workers in especially Germany and have sent this foreign exchange back home, or they have earned this money in the SFRY from activities like tourism, only to see it disappear at the moment the SFRY broke up.

13.         In the 1980’s the SFRY government thrice guaranteed the depositors the return of their savings in foreign exchange (FE). That same government made it very attractive for banks to redeposit FE with the NBY, because it gave the banks dinars in return at very low interest rates. Subsequently these dinars could be loaned to their clients at a high interest rate. The banks themselves made it attractive for the SFRY citizens to deposit their FE with the banks by giving high interest rates (in FE!) of up to 12% on the original deposit.

14.         It is clear that at such high interest rates a very important part of the present claims by depositors is not based on the original deposit, but on accumulated interest.

15.         Considering that the FE-deposits had to be paid back in foreign exchange, and that the level of interest in, say, Germany was much lower, it is not clear how this high interest being paid to depositors – in FE! - could have been economically realistic. 

16.         The FE in question was in fact used

  • either by the NBY to be used as FE reserves, in the case the FE had actually been transferred to the NBY (some 20%, as has been suggested to the Rapporteur), the counter-value in dinars being used by the banks to finance loans for clients within the regions where the banks were operating;

  • or to finance imports and foreign services for clients of the banks, in the case that the FE had not in fact been transferred to the CBRY.

17.         If the value of the FE has been used to pay for imports for the clients of the bank, or if the equivalent of the FE in dinars has been used to give loans to the clients of the bank, then it is clear that the assets of the bank existed in claims on its clients, in consistently devaluating dinars. This means that, with the collapse of the SFRY and its economy, these assets must be regarded as mainly to be lost, bringing the banks into insolvency.

18.         The same applies to FE de facto deposited with the NBY, as these FE reserves were used to pay foreign debts of the SFRY.

19.         If – as a fourth possibility - FE was transferred to the head-office, as is alleged by depositors in the case of LB, no proof of this was available to the Rapporteur.

20.         The economic conclusion must be that the original deposits had, in 1991, in fact ceased to exist. The depositors had, attracted by the high interest rates, run a risk by depositing their money in banks within the SFRY. When this risk was recognised, they were reassured by the guarantee given by the SFRY government that the deposits would be repaid with accumulated interest. But this guarantee evaporated at the moment the SFRY was dissolved, unless and inasmuch the successor states were willing to take over this guarantee.

21.         This was duly realised, but the different successor states did it in different ways. Slovenia, as we have seen, took over the guarantee for FE savings deposited in banks on its territory, expecting the other republics to do the same.

22.         “The former Yugoslav Republic of Macedonia” (as the Rapporteur has understood it: a visit to Skopje was not possible because of the security situation of the moment) did in fact take over the guarantee, but regards itself as a creditor of the banks in question (in this case the LB) in the name of the depositors.

23.         Croatia has accepted to guarantee the deposits with some banks (such as Yugobanka), but not that of LB, stating that the deposits with the Zagreb branch-office of LB should be refunded by the head-office, i.e. by Slovenia, at the same time not allowing that branch-office to continue operations within Croatia.

24.         It is not quite clear what happened in B-H.  The B-H government was not able to take over the guarantee, and at a certain moment (1993) the LB branch-office in Sarajevo was legally constituted as a completely independent entity. So here it is not clear which liability exists.

E.         Relation head-office to regional offices

25.         Long discussions are possible as to what, under the law of the SFRY, the position was of regional offices of banks towards the head-office.

26.         The principles which apply to branch-offices under company and banking law in Western Europe did not apply under the legal regime of the SFRY. Conflicting views were expressed to the Rapporteur about the amount of legal independence of regional offices in this period (1977-1991).

27.         The Markovic reforms of 1989 encouraged banks to end any legal independence of regional offices, but the dissolution of the SFRY followed so quickly that it is not clear what in fact the consequences were for the position of regional offices. And, even if it could be substantiated that during 1990/1991 the offices of the LB outside Slovenia have formally become dependent on the head-office, then it is still not clear what this dependency would mean for assets and liabilities incurred by the regional offices before that moment.

28.         Offices of banks within the SFRY were until 1989/1990 in fact “basic banks” operating within the region where they were based. Comparisons with the relations of branch-offices of banks in Western Europe to their head-offices cannot be made, as the banking laws and the commercial law that existed were completely different.

29.         It is natural for depositors to have the feeling that the head-office should be regarded as liable to pay back FE that was deposited with branch-offices, But in fact banks in the constituting republics of the SFRY, as the Rapporteur was informed, accepted deposits and gave loans within the separate region in which they were operating, i.e. independently from their head-office.

30.         Thus the credit side of the balance sheet existed in claims for repayment of loans given to clients within the region, and the debit side in debts to their depositors. This means that branch-offices, so as to be able to repay depositors, must be able to continue operations and to recover loans. If continuing of operations is, or has been made, impossible, and if – in the case that operations had been continued – the loans are irrecoverable because of the political and economical situation, it is hard to see how a head-office can be held liable, at least under the law which applied in the SFRY.

F.         Government guarantees

31.         This brings the matter back to the guarantees given by the government of the SFRY, which should have been taken over by the successor states. The representatives of depositors to whom I spoke in Zagreb and Sarajevo insisted that the question to be answered was not that of succession of states, but of civil liability of LB and of its branch-offices.

32.         I am afraid this position is not helpful. As was indicated above the deposited FE was either used by the branch-offices to finance loans to their clients in FE, or the FE-deposits were transferred to the NBY and dinars were received in exchange which were used for loans to clients. In both cases the FE is in fact not recoverable. 

33.         This means that the banks were in fact all insolvent by 1990/1 (although the SFRY legal system did not recognise the legal possibility of insolvency) and that the depositors, so as to receive their deposits back, have to apply to successor state governments to repay them on the basis of the guarantees given by the SFRY.

34.         At that moment the problem arises to which successor state they can apply. On the basis of the principle of territoriality, which the Slovenian government has applied, the guarantee rests with the government of the state in which the (branch-) office operated, and where the FE-deposits were made. This would oblige the states of Croatia, Bosnia-Herzegovina and FYROM to repay deposits made into banks on their territory, or to offer alternative compensation.

35.         The Croatian government has applied this principle to depositors of FE in banks on its territory (but not to Croats of Serb origin which were forcibly expelled from the Krajna). Croatia and Bosnia-Herzegovina have offered depositors bonds, which can be used for investment, as compensation.  In the case of the other banks Croatia has taken over the guarantee to the depositors by doing so. But many LB-depositors preferred to keep their claims on the LB. Croatia has taken over the claims of the bond-holders on the LB, stating (together with the other LB-depositors who preferred to keep their claim on LB)) that Slovenia should guarantee the FE-deposits in the LB “branch-office” in Zagreb, because the head-office of LB in Slovenia was liable for deposits made in regional offices. 

36.         The Slovenian government denies this claim, but it is willing to let the matter be arbitrated by the IMF, or to let the matter be settled in the context of an overall agreement on succession problems.

G.         A political or a legal problem?

37.         It is clear that the depositors are the victims

  • of the banking system of the SFRY

  • of the illusion created by the SFRY that high interest rates in FE could be paid on FE deposits, and

  • of the difference of opinion, which still exists after ten years, as to which government should now fulfil the guarantees to depositors given by the former SFRY.

38.         As to the question if a head-office, and therefore the government of the country in which the head-office is located, should fulfil the guarantee: as far as I can judge, under the law applying in the SFRY arguments can be found in favour of holding the head-office liable, and just as many against doing so, with nuances as to the consequences of the Markovic-reforms of 1989.

39.         But even if legal reasoning could make the head-office in Ljubljana liable for the claims of depositors in LB-offices outside Slovenia, the question would come up what the position was at that time, and is at the present moment, of these branch-offices of LB? The one in Zagreb is not allowed to operate, the one in Sarajevo became officially completely independent in the period just after the dissolution of the SFRY. The one in Skopje does not exist any more.

40.         LB has thus lost all the assets of these banks, where the FE-deposits were originally made.

41.         Is it possible to construe liability of the head-office for the debts, but no right to the possible assets, including the claims of the regional offices on its clients for loans given to them in dinars? And if there are no assets, from which fund should the repayments, including the excessive accumulated interest, be repaid?

42.         If this problem would be solved in such a way that LB would be held liable for the FE-deposits and the accumulated interest in the three branch-offices, then the (old) LB would in fact become formally insolvent, in the case that LB has not retained any assets in FE from these branch-offices opposite that liability.

43.         The Rapporteur has not been able to ascertain if the claim is valid of the depositors in Zagreb that FE-deposits were in fact transferred from the branch-office to the head-office of LB, especially in 1990-91, which would mean that the head-office did dispose of some assets against the FE-deposits. The Slovenian government would in that case have to back up the guarantee, because this principle would make Slovenia liable for deposits, which the head-office – according to this solution – has to repay.

44.         If that is the case it again becomes a political, and not a legal problem. Is Slovenia economically able to repay the large sum involved to depositors? And is it realistic to ask Slovenia to discuss this problem with Croatia, BiH and “the former Yugoslav Republic of Macedonia”, if in the meanwhile other problems of succession to the SFRY, including the rights to the remaining gold deposits in the Bank for International Settlement in Basel, are still undecided?

45.         The Rapporteur would suggest that there is no easy answer to the question if the head-office of LB is in fact liable. At the same time it is clear that, even if the legal question is decided negatively for the LB head-office, a claim on Slovenia to make good the guarantee to all the depositors for many hundreds of millions of D-Marks, including the accumulated interest, would involve economic and political problems for Slovenia that would be difficult to solve.

46.         In fact this is the main reason why no solution has up till now been found.

47.         In the meantime the depositors have been waiting for years for their remaining deposits to be repaid with accumulated interest, which seems to be very unfair. Even if the amount of the originally promised interest, which was excessive, would be corrected to a reasonable level, it all together still means a very sizeable amount of money. It does not seem fair to keep these depositors waiting until a host of legal, economic and political questions have been solved.

H.         Conclusion

48.         The matter has been put before the Committee on Legal Affairs and Human Rights because the Bureau regarded the problem, like many depositors, and like the national delegations of Croatia, Bosnia-Herzegovina and “the former Yugoslav Republic of Macedonia”, as predominantly a legal matter, i.e.

  • the law of obligations as to liabilities of head-offices concerning liabilities of branch-offices;

  • human rights, especially the protection from illegal expropriation;

  • and the international rules governing succession of states.

49.         Of course legal matters are involved. But the banking system of the SFRY, which was based on illusions and not on economic facts, cannot automatically be translated into civil liabilities under the present system after the fall of the SFRY.

50.         And the protection against expropriation guaranteed by the European Convention of Human Rights, even if it were applicable to the case in point, which the Rapporteur doubts, was in any case not applicable under the SFRY.

51.         Thus a Rapporteur of the Committee on Legal Affairs and Human Rights cannot express opinions, which hold any legal substance without recreating the world of illusions in which the problem of the non- refunded deposits was originally created.

I.          Recommendation

52.         Although this is hardly a matter for a Rapporteur of the Committee on Legal Affairs and Human Rights, it certainly does appear to me that something should be done for the depositors at short notice.

53.         A possibility would be to set up a Collective Fund under the auspices of the Council of Europe to repay to the depositors the original loans in FE, starting off with those whose economic situation has been most seriously affected by the insolvency of the banks where they made their deposits in FE before 1991.

54.         The Fund should be financed by all the four governments concerned, in amounts relating to the FE-deposits in each of the countries. Slovenia, which has already recompensed the depositors in banks on the territory of Slovenia, should be willing to contribute substantially to the Fund in exchange for willingness of the other governments to let LB – if it wishes - reopen its offices in Zagreb, Sarajevo and Skopje.

55.         The European Union should also be asked to contribute to the Fund in the framework of the Stability Pact for the Balkans.


Programme of the visits of the Rapporteur
Zagreb, Sarajevo and Ljubljana

(19-22 March 2001)

Republic of Croatia

Sunday 18 March 2001

13 h 15                         Arrival in Zagreb

14 h                  Short meeting with Mrs Mirjana FERIC-VAC, Chairperson of the Croatian Delegation to the Parliamentary Assembly of the Council of Europe, and with Mr Ivo ŠKRABALO, member of the Committee on Legal Affairs and Human Rights

16 h                  Mrs Danica ŠEKRST, Ms Jasminka ŠEKRST and Mr Juraj ŠEKRST, savers

16 h 30             Mr Milivoje ŽUGIC, practising attorney and agent

17 h                  Mr Mile VLAHOVIC, saver and Mr Božidar �EREK, agent

17 h 30             Mr Božidar VUKASOVIC, agent

18 h                  Members of the Croatian parliamentary delegation:

  • Ms Mrijana FERIC-VAC, Chairperson


  • Mr Dražen BUDIŠA (President of the Croatian Liberal Party)

  • Mr Anto KOVACEVIC (President of the Croatian Christian Democrat Party)

19 h 30             Dinner hosted by Mrs Mirjana FERIC-VAC, Chairperson of the Croatian Delegation to the Parliamentary Assembly to the Council of Europe

Monday 19 March 2001

9 h                   Ministry of Finance

  • Mr Hrvoje RADAVANIC, Assistant Minister of Finance, responsible for cash and public debt Croatian Central Bank

  • Mr  Tomislav PRESECAN, Vice-Governor

  • Mr Neven BARBAROŠA, Director of the Directorate for Cashless Transactions

10 h 10                         Ministry of Foreign Affairs

  • Mr Joško PARO, Assistant Minister of Foreign Affairs

  • Ms Ljerka ALAJBEG, Legal Advisor

  • Ms Olga KRESOVIC-ROGULJA, Co-ordinator for the relations with Slovenia in the Department for Neighbouring Countries

  • Ms Ivana MORIC, Minister Plenipotentiary, Department for the European Union, Council of Europe and Regional Initiatives

11 h 20             -    Mr Franja LUKOVIC, President of the Management Board, Zagrebacka Banka

-       Mr Božo PRKA, President of the Management Board, Privredna Banka

12 h 30                         Ministry of Justice

Ms Lidija LUKINA-KARAJKOVIC, Assistant Minister, Directorate for International Legal Assistance, Co-operation and Human Rights

Ms Olga JEKCIC, Assistant Minister, Directorate for Civil Law

13 h 05             Lunch at the restaurant of the Croatian Parliament hosted by Mr Mato ARLOVIC, Deputy President of the Croatian Parliament

14 h 30                         Croatian Government

  • Mr Bozo MARENDIC, Head of the Office for the Project of Succession

  • Ms Snježana BAGIC, Head of the Office for Legislation

  • Mr Vladimir �URO DEGAN, Co-ordinator for legal issues in the project of the succession of the SFRY

15 h 40                         Croatian Parliament

  • Mr Jadranko MIJALIC, President of the Committee on Finance and State Budget of the Croatian Parliament

  • Mr �uro NJAVRO, Deputy President of the Committee on Finance and State Budget of the Croatian Parliament

  • Mr Borislav GRALJUK, Member of the Committee on Human Rights and Rights of National Minorities

16 h 50                         Ms Helena LENAC, independent expert

17 h 30             Mr RADANOVIC, Ministry of Finance

20 h 15                         Departure form Zagreb

Republic of Bosnia and Herzegovina,

Monday 19 March 2001

21 h                  Arrival in Sarajevo

Tuesday 20 March 2001

8 h 30               Representatives of the Association for the Protection of the Depositors from Bosnia and Herzegovina in "Ljubljanska Banka"

9 h 30               Dr Jadranko PRLIC, Deputy Minister for Foreign Trade and Economic Relations in Bosnia and Herzegovina

10 h                  Mr Kresimir ZUBAK, Minister for Human Rights and Refugees of Bosnia and Herzegovina, and Mr Slobodan NAGRADIC, Deputy Minister

11 h                  Follow-up meeting with representatives of the Association for the Protection of the Depositors from Bosnia and Herzegovina in "Ljubljanska Banka"

12 h                  Mr Sead AVDIC, Chairman of the House of Representatives of the Parliamentary Assembly of Bosnia and Herzegovina, and Mr TUSIC, Chairperson of the Commission of Human Rights

13 h                  Mr Muharem IMAMOVIC and Mrs Gordana KOVAC, Deputy Ministers for Treasury of Bosnia and Herzegovina

14h                   Lunch hosted by Mr Kresimir ZUBAK, Minister for Human Rights and Refugees of Bosnia and Herzegovina

16 h 30             Departure from Sarajevo

Republic of Slovenia

Tuesday 20 March 2001

17 h 25             Arrival in Ljubljana

19 h 30             Dinner hosted by Mr Roman JAKIC, Head of the Delegation of the Parliament of the Republic of Slovenia to the Parliamentary Assembly of the Council of Europe

                        Also present: Mr Janez KOPAC, Minister on Environment and former Chairman of the Committee on Finance and Mr Blaž KAVCIC, Vice-President of the Committee on Finance 

Wednesday 21 March 2001

10 h                  Meeting with Mr France ARHAR, Governor of the Bank of Slovenia 

11 h 15             Meeting with Mr Borut PAHOR, President of the Parliament and former Head of Slovene Delegation to PACE also present Mr Mitja GASPARI, former Minister of Finance     

12 h                  Meeting with the Members of the Delegation of the Parliament of the Republic of Slovenia to the Parliamentary Assembly of the Council of Europe (Mr Roman JAKIC, Mr Janez PODOBNIK, Mr Jožef BERNIK, Mr Aurelio JURI and Mr Miha BREJC)

12 h 30             Lunch given by the Delegation of the Parliament of the Republic of Slovenia to the Parliamentary Assembly of the Council of Europe

15 h                  Meeting with Mr Tone ROP, Minister for Finance

16 h 15             Meeting with Mr Miran MEJAK, Co-ordinator for the questions on succession and Mr Andrej RANT, Vice-Governor of the Bank of Slovenia

Thursday 22 March  2001

9 h 15               Meeting with Mr Dimitrij RUPEL, Minister of Foreign Affairs

10 h                  Meeting with judge of the Supreme Court Mr Dušan OGRIZEK, Head of Civil Division

11 h                  Meeting with Mr Borut OŽURA, Director of Ljubljanska Banka

14 h 05             Departure from Ljubljana

Belgrade (Federal Republic of Yugoslavia)

Monday, 11 June 2001

9 h                   Official talks between the delegation of the Federal Assembly and Mr Jurgens

10 h 30             Meeting with Mrs Vesna Arsic, Vice-Governor of the National Bank of Yugoslavia and experts of the National Bank of Yugoslavia (experts from the former leadership of the Bank also in attendance)

12 h 30             Meeting with Mr Dragiša Pešic, Federal Minister for Finances [FederationPalace]

13 h 30-15 h      Lunch at the Restaurant of the Deputies’ Club, hosted by Ms Božina Mrdovic, Deputy Head of the Federal Assembly Delegation


The banking system of the former Socialist Federal Republic of Yugoslavia

by Mr Hans du Marchie Sarvaas

1.              The banking system in the former Socialist Federal Republic of Yugoslavia (SFRY) had a special function which was unknown in the market economies of Western Europe. Before 1989 only 9 authorised banks were allowed to make foreign exchange (FE) transactions. These 9 banks headed each a group of connected basic banks. Most banking groups were very active in attracting FE savings from Yugoslav nationals residing within as well as outside the country. After 1989 a major shift in the banking regulation allowed some basic banks to make a choice for an independent status, while other basic banks became branches of the main bank of the group they belonged to. For instance, the reputed Slovenian  banking group Ljubljanska Banka  continued its business in Croatia since 1989 through a branch office in Zagreb in attracting FE deposits from mainly Croatian depositors and giving dinar loans to mainly Croatian customers.

2.              As from 1979 the banks in the SFRY were obliged to redeposit the FE savings attracted from the public with the Central Bank of the SFRY, the National Bank of Yugoslavia in Beograd ( NBY) , in order to make sure that the exchange rate risk for the banking system ensuing from the FE deposits would be zero.  The total claim of the banking system in FE on the Central Bank was supposed to be the same as the total liabilities in FE towards the depositors. Nevertheless, we understood that only a minor part of the FE liabilities of the banking system was actually transferred to the NBY because the banks used part of the acquired FE to finance imports by their corporate customers and because the accrued interest on the savings accounts could not be transferred. Anyhow, the difference between the total FE liabilities of the banking system and the transferred FE was periodically ‘pro forma’ deposited with the NBY, so that the exchange rate risk remained completely taken over by the NBY. The NBY could only urge the SFRY to compensate from the federal budget the inevitable exchange rate losses the NBY would incur because of these pro forma deposits. In view of the budgetary situation of the SFRY the result was a growing paper claim of the NBY on the Federation.

3.              For the public it was attractive to take part in this unsustainable scheme and to deposit its hard currency with the Yugoslav banking system because one could get an above-market interest rate on FE savings and because there was an overall guarantee by the SFRY. Also for the banks it was attractive to acquire a fair share of the FE savings market because they could redeposit the FE with the NBY, which in turn provided very cheap liquidity in dinars and took over all the exchange rate risk ensuing from the total FE liabilities of the banking system. Although one can understand that cheap dinars were very profitable in an inflationary environment, where high interest rates should be expected, the banks appeared quite often to have decided to use the FE proceeds for import financing; apparently they had that choice in spite of the obligation to redeposit with the NBY.

4.         In conclusion the banking system of the now dissolved SFRY seems to have been founded on the illusion that the Federation would one day tackle the growing problems, making it possible for the banking system to pay back to the depositors their hard currency savings, accrued interest included. On the other hand, we understood that already before 1989 it was in practice very difficult for depositors to get back their money in FE. One could argue that the former regime in de SFRY used the savings of its citizens as if these had never to be paid back and serviced as agreed: cheap money compared to the strict conditions no doubt attached to FE borrowings on the international capital markets.


to the Introductory memorandum
(December 2003)

A.         Events since the introductory memorandum of 19 September 2001 was circulated

1.                   After the introductory memorandum was circulated within the Committee on Legal Affairs and Human Rights comments were received from the delegations of Slovenia (7 December 2001, AS/Jur (2001) 57), Macedonia[1] (7 December 2001, AS/Jur (2001) 58) Bosnia and Herzegovina (21 December 2001, AS/Jur (2001) 66) and Croatia (14 January 2002, AS/Jur (2002) 09).[2]

2.                   During the Assembly's January 2002 part-session, the Rapporteur held a meeting with representatives from these delegations. He learned that a meeting had been held in May 2001 in Vienna of the states negotiating on problems relating to the succession of the former Socialist Federal Republic of Yugoslavia (SFRY). There it had been decided to relegate the matter of foreign currency deposits into subsidiaries of banks in the SFRY to separate discussions under the auspices of the Bank for International Settlements in Basel.

3.                   Consequently the Rapporteur, in agreement with those present, decided that it would not be useful to discuss the draft report while the discussions in Basel were continuing.

4.                   These discussions, so the Rapporteur has learnt since then, regrettably did not lead to a solution of the problem.

5.                   During the June 2003 part-session, several delegations asked me if I would now continue my own attempts to help find a solution to this problem. In particular the Chair of the delegation of Macedonia, Mrs Mitevska, who reiterated her invitation to visit Skopje since the Rapporteur had not been able to accept it in June 2001 as it turned out to be impossible to reach Skopje by air from Belgrade, as had been planned at that moment,.

6.                   I visited Skopje on 12 and 13 November 2003, and spoke with the authorities involved with the claim on the Ljubljanska Banka (LB), casu quo the Republic of Slovenia, regarding the foreign currency deposits made in the Skopje branch of LB.

7.                   In addition, a case is pending since 2001 before the European Court of Human Rights in an appeal by three private depositors from Croatia. The appeal is based especially on the violation of Article 1 of the First Protocol of the ECHR (protection of property). It is expected that the Court will rule on the admissibility of this appeal by January 2004. Even if the appeal is declared admissible, it will take a long time before the Court has made a decision in the case itself.

B.         Visit to Skopje on 12-13 November 2003

8.                   During this visit I was told that the situation of Macedonia was special. This country had, as is partially also the case in Croatia, first for “hardship cases” in 1989 and subsequently on a wider scale in 1993, taken on by law the claims of the depositors in foreign currency in the Skopje branch of the LB. The savers were recompensed with long-term bonds (on the public debt) that can inter alia be used for certain payments. Consequently it is Macedonia that exercises the claims of the depositors.

9.                   A second special position, so we were told, is formed by the “Agreement between Macedonia and Slovenia for Economic Cooperation”, signed in May 1992. Of relevance are Articles 8, 10 and 11 of that Agreement. Article 8 states: “In the field of banking, the States-Contracting Parties oblige themselves to guarantee the fulfilment of the agreed liabilities within the deadlines and currencies of the credits and the guaranteed agreements for the liabilities of the entities having seat on their territories”. This would suggest, so the Macedonian side says, that the head office of the LB, or the state of Slovenia, has undertaken to fulfil its guarantees.

10.               On the basis of Articles 10 and 11 of this Agreement, the LB was allowed to continue its activities in Skopje, which it did under the name of Makedonska Banka. The continuation of banking activities was not possible in Zagreb and Sarajevo. The situation since then, however, had been complicated as the National Bank of Macedonia only learnt in 1998 that the LB had sold its majority share in Makedonska Banka in 1994 to private individuals, for an amount the Macedonian side says was only a fraction of fair market value. The LB had subsequently bought a majority share in a different, existing bank (Todanska Banka).

11.               I was finally told that a third special feature of the situation in Macedonia was the fact that the amount of foreign currency savings deposited by savers in this country was disproportionately higher, on a per capita basis, than the savings deposited in other republics. A simple “proportionate” distribution of the National Bank of Yugoslavia guarantee among the successor states would therefore put the Macedonian side at a disadvantage. 

12.         As to the claim on the LB head-office for recompensation of the foreign currency accounts with the LB subsidiary in Skopje until 1992, the Macedonian side insists – like Croatia and Bosnia and Herzegovina - that it is not a part of the complex problems of succession, but that it is a claim under civil law (law of obligations or of contract) vis � vis the LB head office in Ljubljana.

13.         Slovenia, as is known, claims that the deposits in foreign currencies have been guaranteed by the former SFRY, that it has recompensed the depositors in Slovenia as successor to the SFRY, and that the states where branch offices of banks existed should do the same for those branch offices that were within their territory.

14.         As with the authorities in Croatia and Bosnia and Herzegovina, I discussed the possibility of finding the answer to two specific issues raised also by the Macedonian side:

  • whether the branch office of the LB in Skopje was still independent at the moment Macedonia became independent (1992), or whether, after the Markovic reforms of 1989, it had in fact or by law become a subsidiary.

  • whether de facto part of the foreign currency deposited at the Skopje office of LB had been transferred to the head office in Ljubljana, so that the LB thus evaded the responsibility of paying back depositors in Skopje, by siphoning off resources that would otherwise have been available to honour (part of) its obligations.

15.         I have explained in the draft report that it is very difficult to decide conclusively whether offices of a bank – under the “banking system” in place during the FSYR – were subsidiaries or independent offices, as the legal criteria which are usual to ascertain this under civil and commercial law did not pertain in SFRY.

16.         As to the second question, the Governor of the National Bank of Macedonia agreed to look for evidence that foreign currency had indeed been transferred from the Skopje branch office to the LB head office in the period 1989-1992.

17.         I have reiterated to my Macedonian interlocutors the opinion voiced in my draft report, that all banks in the former SFRY were – at the moment that the SFRY broke up – de facto in a state of insolvency, even though insolvency as such is a legal phenomenon that was unknown under the “socialist” system.

18.         If a state of insolvency could have been declared, then a statement could have been drawn up of all the assets and liabilities of the banks and branch offices at that moment. Assuming that assets were insufficient to cover all liabilities, depending on the ranking of the different categories of claims, it may have been possible to cover at least part of the deposits made by individual savers. But in the absence of proper bankruptcy proceedings, it is very difficult, later on, to construe claims in civil law.

19.         That is why the guarantee of the former federal government has been invoked. The matter thereby inevitably becomes part of the discussions on the succession of the SFRY, i.e. which of the successor states should guarantee which deposit.

C.        Role of the Legal Committee in conflicts like these

20.         Although the visit to Skopje was useful, and provided me with new and interesting information on the specific situation in this country, the Rapporteur has to conclude that he nevertheless finds too few legal grounds on which to base suggesting to the Assembly a specific legal conclusion to solve the, undeniably, serious problem with which the depositors of foreign currency in the banks of the former SFRY are faced.

21.         As far as such legal grounds have been put forward, they are of a very complex nature, and are only partially linked to human rights, especially to the protection of property. It must be recalled that the problem has been put before the Assembly as a human rights issue.

22.         The comments made by Slovenia, Macedonia, Bosnia and Herzegovina and Croatia two years ago and the new elements presented by the Macedonian side in December 2003 (English only)[3] illustrate the depths into which a technical legal analysis and the attempted elucidation of all factual elements would have led us.

23.         The Committee on Legal Affairs and Human Rights, and its Rapporteur, cannot act as a court of law, adjudicating on the facts of a case and on the law that should be applied to a case. The Committee lacks the time and the expertise to adjudicate on such points of fact and law. For example, there is no possibility to conduct in-depth research into matters such as the exact way banks functioned in the former SFRY, more than ten years ago, which transfers of funds (foreign currency and dinars) were made, and when, and how, between which branches/head offices and/or the National Bank of Yugoslavia. As to points of law, in-depth research would be needed as to the exact legal status of branch offices before and after the Markovic reforms.

24.         Certainly, as regards points of law, a general position can be taken by the Committee on Legal Affairs and Human Rights – such as that in this case, it is at best uncertain whether Article 1 of the First Protocol to the ECHR can be invoked in this case. In any event, it is not for our Committee to do the job of the Court, i.e. taking a decision after looking into the specific elements of a certain case. Proposing a legal solution of a general nature is even more difficult, as the specific elements of the cases of different depositors can differ widely.

D.         Conclusions

25.         All together I cannot, after my visit to Skopje, and after reading all the reactions from the several member states to my original draft, come to a different conclusion than the one I came to in my draft of September 2001. The Assembly will forgive its Rapporteur that – since I have not changed my point of view since then - I have not rewritten the whole draft report, but have left it as it was, choosing to add an Addendum. Thus the reader can see which conclusions I had reached at that time, before the unsuccessful negotiations under the auspices of the Bank for International Settlement were started. And it gives me the opportunity to report on my recent visit to Macedonia separately. The conclusion I had reached was that a political solution should be found for this problem, within or outside the negotiations between the successor states of the former SFRY on problems still remaining.

26.         I have gained the impression that all the successor states have realised that a fair solution must be found, in the interest of the savers, but also in their own interest as countries that need to establish and consolidate their reputation as serious players in the financial markets that face up to their obligations in good faith. Such a solution must be negotiated among equal partners, putting all the facts on the table.

27.         The Committee on Economic Affairs and Development may be in a better position to push for such a solution, possibly with the involvement of the European Union and the Stability Pact for South-Eastern Europe.

28.         In the process of finding an equitable key to distribute the liabilities that follow from foreign currency deposits with banks in the member states that are successors to the SFRY, the information I have gathered and which the successor states are continuing to collect on what exactly happened to these deposits between 1989 and the dissolution of the SFRY can still prove to be very useful.


Programme of the visit of the Rapporteur
Skopje (“the former Yugoslav Republic of Macedonia”), 12-13 November 2003

Wednesday 12 November 2003

12 h 30                         Arrival at SkopjeAirport

14 h – 14 h 30               Meeting with Mrs Eleanora Petrova Mitevska, Head of the delegation of the Assembly of “the former Yugoslav Republic of Macedonia” to PACE and the members of the delegation

                                    [Constitutional Committee Hall]


                                    - Mr Andrej Zernovski
                                    - Mrs Ganka Samoilovska-Cvetanova
                                    - Mr Dzevdet Nasufi

- Mr Marjan Madzoski, Advisor to the Standing Inquiry Committee for

Protection of civil freedoms and rights

- Representative from the Department of Information of the Assembly

14 h 30 – 16 h               Working lunch hosted by Mrs Eleanora Petrova Mitevska

                                    [Assembly Restaurant]

16 h – 17 h 30               Meeting with legal experts for the case of "Ljubljanska Banka"


                                    - Prof  Dr Todor Dzunov
                                    - Mr Marjan Madzoski

- Representative from the Department of Information of the Assembly

19 h 30                         Dinner hosted by Mrs Liljana Popovska, Vice-President of the Assembly

[Banquet Hall in the Assembly]

Thursday 13 November 2003

10 h 05 – 10 h 45           Meeting with Mr Fuat Hasanovic, Deputy Minister for Foreign Affairs

                                    [Ministry of Foreign Affairs]

11 h – 11 h 45               Meeting with Mr Dimko Kokaroski, Deputy Minister of Finance

                                    [Ministry of Finance]

12 h – 13 h                    Meeting with Mr Ljube Trpeski, President of the National Bank

                                    [National Bank]

13 h 15 – 14 h 30           Lunch hosted by Mr Ljube Trpeski, President of the National Bank

                                    [Restaurant "Uranija"]

14 h 45 – 15 h 50           Meeting with banking experts for the case of "Ljubljanska Banka"


                                    - Prof Dr Ljubomir Kekenovski, Chair of the Board of the National Bank

                                    - Mrs Dusanka Hristova, Ex-Vice-President of the National Bank

                                    - Mr Marjan Madzoski

                                    - Representative from the Department of Information of the Assembly

16 h                              Departure to SkopjeAirport

Reporting committee: Committee on Legal Affairs and Human Rights

Reference to committee: Doc 8266, Reference No 2687 of 21 January 2002

Draft resolution by the Committee on 15 March 2004 with one abstention

Members of the Committee: Mr Lintner (Chairperson), Mr Marty, Mr Jaskiernia, Mr Jurgens (Vice-Chairpersons), Mrs Ahlqvist, Mr Ak�am, Mr Alibeyli, Mr Arabadjiev, Mrs Arifi, Mr Ates, Mrs Azevedo, Mr Barquero V�zquez, Mr Bartumeu Cassany, Mrs Bemelmans-Videc, Mr Berisha, Mr Bindig, Mr Bruce, Mrs Christmas-M�ller, Mr Cilevics, Mr Coifan (alternate: Mr Chiliman), Mr Contestabile, Mr Davis, Mr Dimas, Mr Engeset, Mrs Err, Mr Fedorov, Mr Fico, Mr Frunda, Mr Galchenko, Mr Gedei (alternate: Mr Tabajdi), Mr Goris, Mr Guardans, Mr G�nd�z, Mrs Hajiyeva, Mrs Hakl, Mr Holovaty, Mr Ionnadis, Mr Ivanov, Mr Jurica (alternate: Mr Letica), Mr Kalezic (alternate: Mr Micunovic), Mr Kaufmann, Mr Kelber, Mr Kelemen, Mr Kroll, Mr Kroupa, Mr Kucheida, Mrs Leutheusser-Schnarrenberger, Mr Manzella, Mr Martins, Mr Masi, Mr Masson, Mr McNamara, Mr Monfils, Mr Nachbar, Mr Olteanu, Mrs Ormonde, Mrs Pasternak, Mr Pehrson, Mr Pellicini, Mr Pentchev, Mrs P�tursd�ttir, Mr Piscitello, Mr Poroshenko, Mrs Postoica, Mr Pourgourides, Mr Prica, Mr Pullicino Orlando, Mr Raguz, Mr Ransdorf, Mr Rochebloine, Mr Rustamyan, Mr Sol� Tura, Mr Spindelegger, Mr Stankevic, Mr Symonenko, Mr Takkula, Mrs Tevdoradze, Mr Wilkinson (alternate: Mr Malins), Mrs Wohlwend, Mr Zavgayev

N.B. The names of those members who were present at the meeting are printed in italics.

Secretaries to the Committee: Ms Coin, Mr Schirmer, Mr Cupina, Mr Milner

[1]I regard the use of the denomination “former Yugoslav Republic of Macedonia” to be ridiculous, certainly since the name Yugoslavia itself is not used any more. I therefore consistently use the word “Macedonia”, as this is what the member state concerned calls itself.

[2] The afore-mentioned documents are available from the Committee secretariat.

[3] Available from the Committee secretariat.