Croatia's next cabinet should pursue an agreement with banks over a 2015 law that makes them pay for converting Swiss-franc loans before more lenders follow the example of UniCredit SpA and take the country to court, the head of the Croatian Banking Association (HUB), Zdenko Adrovic, said in an interview with the Bloomberg business news agency earlier this week.

The HUB said Croatian banks were stuck with as much as 7.6 billion kuna ($1.1 billion) in costs over the law, which obliged them to convert franc loans to euros using the exchange rates under which they were issued. UniCredit, one of eight foreign banks with units in Croatia, filed an arbitration claim on September 16 at the International Center for the Settlement of Investment Disputes, the news agency recalled.

"The dispute will be the first big test for the next Croatian government following September elections. The conservative HDZ is now in coalition talks with the Bridge party of independents and mayors and other smaller political groups. While any administration that emerges from the talks may still find a compromise with the banks, time for an agreement may be running out, according to Adrovic," Bloomberg said.

"We don’t have a lot of time at our disposal. The situation will change once the next three or four or five banks start arbitration procedures, and we know that several banks have already prepared for that," Adrovic said without specifying which banks had started preparations.

Adrovic called the current law "radical," and said that Croatia, unlike any other country in the European Union, had passed it without consulting the European Central Bank or the European Commission.

Bloomberg quoted Finance Minister Zdravko Maric as saying in September that Croatia is looking into a possible agreement with banks. Bridge party leader Bozo Petrov said last week that his party and HDZ are discussing possibly introducing a tax on lenders’ assets as part of a resolution.

"We have exchanged information with the government, but I wouldn't say the negotiations have started yet," Adrovic said. If the next government does impose taxes on bank assets, each foreign lender could hypothetically "seek to protect its investment in Croatia and could merge a Croatian unit with a parent bank abroad, leaving in Croatia a retail network that wouldn’t hold any assets."

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