CNB revokes licence of ERB bank
The Czech National Bank has revoked the licence of ERB bank. The main reasons for this action were the bank’s non-functioning governance system and purchases of bonds in contravention of legal rules. The decision took effect on 24 October 2016. Further to this decision, the CNB will file a court petition to appoint a liquidator of ERB bank.
The CNB found major shortcomings jeopardising the stability of ERB bank, especially in the areas of credit, market and liquidity risk management. Poor credit risk management had negatively affected the bank’s credit portfolio. ERB bank had also failed to adequately manage other risks associated with its activities, including operational and information security risks. In addition, the bank did not have enough personnel and expertise and lacked a functioning system for preventing money laundering and terrorism financing and ensuring compliance with international sanctions.
Moreover, ERB bank had, under entirely non-standard conditions, purchased EUR 60 million of bonds issued by an Austrian company, causing it to exceed the limit on claims against a single entity many times over. It failed to reduce this claim below the prescribed limit in the course of administrative proceedings.
The decision to revoke the banking licence took effect on 24 October 2016. From that date onwards, ERB bank may only carry on activities necessary to settle its claims and liabilities.
This decision was preceded by a preliminary CNB ruling of 8 March 2016 restricting ERB bank’s activities to prevent further damage to depositors’ interests. The CNB informed the Financial Market Guarantee System (FMGS) of ERB bank’s inability to meet its obligations on 11 October 2016. The FMGS started to pay out compensation for client claims on 20 October 2016.
Deposits of individuals and firms with ERB bank, including interest, are insured with the FMGS up to an amount of EUR 100,000 (around CZK 2.7 million) per depositor. Compensation of 100% is provided up to this limit.
Director, Communications Division