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CZECH BANKING ACT

"Zakon o bankach"

No. 21/1992 Coll.,

as amended under (Czechoslovak) Act No. 264/1992 Coll.and under Czech Acts No. 96/1993 Coll.,

No. 292/1993 Coll., No. 156/1994 Coll.,

No. 83/1995 Coll., No. 84/1995 Coll., No. 61/1996 Coll.,

No. 306/1997 Coll., No.16/1998 Coll.,

No.127/1998 Coll.*

and No. 165/1998 Coll. **

The Federal Assembly of the Czech and Slovak Federal Republic has adopted the following law:

PART ONE

FUNDAMENTAL PROVISIONS

Section 1

(1) For the purposes of this Act, legal entities having their registered office (seat) in the Czech

Republic and founded as joint stock companies (Note 1) are considered to be banks, if they:

(a) accept money on deposit from the public; and

(b) provide credits (loans);

and if such entities have been granted the appropriate banking licence (section 4) for

performance of the activities under letters (a) and (b).

(2) For the purposes of this Act:

(a) a deposit*

("vklad") is understood to be pecuniary means**

entrusted to a bank, which thereby

puts the bank under an obligation to pay the deposit to the depositor on demand; and

(b) a credit, in whatever form, is understood to be temporarily pecuniary means.

* Amendments in bold type came into effect on 6 February [except for section 38(3)(f) which came into

effect on 1 January 1998 and section 38(3)(g) which came into effect on 30 June 19981.**

Amendments in bold italics shall come into effect on 1 September 1998.*

The term "deposit" in the Act either refers to a deposit of money ("vklad") as defined in section 1(2)(a),

or to a deposit of securities or other valuables for the purpose of their safekeeping "ulozeni"** "Pecuniary means", in Czech "penezni prostredky", is also translated as “pecuniary resources" or

"monetary resources".



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(3) Apart from the activities referred to in subsection (1)(a) and (b), a bank may also engage in

the following activities, unless its banking licence implies otherwise:

(a) investment in securities on its own account;

(b) financial leasing;

(c) making and receiving payments and balancing accounts (clearing services);

(d) issuing payment facilities, such as credit (payment) cards, traveler’s cheques and the like;

(e) providing guarantees;

(f) opening letters of credit;

(g) operating a collection service;

(h) trading, on its own or the client's account, in:

1. foreign exchange (foreign currencies),

2: futures and options, including arbitrage (transactions based on variable rates of exchange

and/or interest rates),

3. negotiable instruments (transferable securities);

(i) participation in the issue of shares and the provision of related services;

(j) financial brokerage;

(k) consulting services relating to business (entrepreneurial) activities;

(1) managing a client's securities on his own account (i.e. at his own expense) and consulting

activities related thereto (portfolio management);

(m) receiving securities and other valuables for the purpose of their (safe) deposit and

management;

(n) acting as a depository*;

(o) providing foreign exchange services (i.e. purchasing and selling foreign currencies and

foreign exchange);

(p) providing banking information;

(r) rental of safe-deposit boxes.

* In accordance with Black's Law Dictionary, the term "depository" is used for an institution (or

person) in whose care valuable things, such as securities, have been deposited for safekeeping,

whereas the term "depository" refers to the place where such things are kept. '



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(4) Mortgage bonds under a separate Act (Note la) maybe issued only by a bank whose banking

licence expressly authorizes such activity.

(5) Performance of certain activities (operations) specified in subsections (3) and (4) may require

the granting of a separate licence (authorization) under another Act.

(6) Banking services under subsections (1)(a) and (b) and (3) may also be provided by branches

of foreign banks which have been licensed under section 5.

(7) A banking licence may define the scope of the licensed activity and determine the conditions

to be complied with by the bank prior to undertaking any licensed activity, or during

performance of any licensed activity.

(8) The legal status of the Czech National Bank shall be regulated by another Act (Note 2).

Section 2

Unless a separate Act provides otherwise, accepting deposits of pecuniary means from

licence the public is not permitted without a banking licence.

Section 3

(1) The terms "banka" ("bank") or "sporitelna" ("savings bank"), as well as translations of them,

or their derivatives, may only be used in the commercial (business) name of a legal entity

which has been granted a banking licence, unless it is clear from the context in which the

term "bank" or "savings bank" is used that the legal entity in question is not engaged in the

activities defined in section 1(1).

(2) The provision of subsection (1) shall not apply to legal entities whose commercial name or

title is well-known or recognized by law or by an international agreement.



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PART TWO

BANKING LICENCES

Section 4

(1) An application for a banking licence ("povoleni pusobit jako banka") is submitted to the

Czech National Bank together with the draft of the articles of association. In a Regulation

(Note 3) to be promulgated in the Collection of Laws (statute book), the Czech National

Bank shall determine the application requisites and the minimum amount of subscribed

registered capital (i.e. subscribed capital stock, hereafter referred to as "registered capital"; in

Czech "zakladni jmeni") being a condition for the granting of a banking licence.

(2) The Czech National Bank shall request the opinion of the Ministry of Finance prior to

making a decision on the granting of a banking licence.

(3) When deciding whether to grant a banking licence, the following facts shall be taken into

consideration:

(a) the origin, adequacy and formation (composition) of the registered capital and the bank's

other financial resources;

(b) the professional qualifications and civic integrity (unimpeachability) of individuals who

.are nominated to perform executive offices connected with authority and

responsibility, as defined in the articles of association (hereafter "managing employees

of a bank"), and which are to be undertaken on the basis of an employment contract,

mandate or some other contract;

(c) the technical and organizational prerequisites for the proposed banking operations;

(d) a feasibility study regarding the future liquidity and profitability of the bank;

(e) the qualifications of any founder, whose share in the bank's voting rights is 10% or more, to

exercise the shareholder's rights in the bank's business activity.

(4) The Czech National Bank is authorized to ask for extracts from the Criminal Offence Register

regarding individuals who are founders of a bank or nominated to become managing



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employees of a bank.. An individual who has been sentenced for a willful criminal offence

(criminal act) under a final judgment may not become a managing employee of a bank.

Section 5

(1) A foreign bank which intends to establish a branch on the territory of the Czech Republic

shall apply to the Czech National Bank for a banking licence.

(2) The Czech National Bank shall ask for the opinion of the Ministry of Finance prior to the

granting of a banking licence under subsection (1).

(3) The decision whether to grant a licence shall be made after taking into consideration:

(a) the amount of capital and other financial resources provided by the foreign bank to its local

branch;

(b) the technical and organizational prerequisites for the proposed banking activities

(operations);

(c) the professional qualifications and civic integrity of the persons proposed to manage the

branch;

(d) feasibility of economic calculations.

(4) The Czech National Bank shall stipulate the requisites of the application and the minimum

amount of the required capital in a Regulation (Note 3) to be promulgated in the Collection

of Laws.

Section 6

(1) Banking licences are granted for an indefinite period of time and are not transferable to

another entity.

(2) Performance of certain activities outlined in section 1(3) may be either excluded or restricted

in the banking licence.



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Section 7

The Czech National Bank shall keep a complete list of banks and branches of

foreign banks operating on the territory of the Czech Republic. This list shall be available

for information at the headquarters. and any branch office of the Czech National Bank.

Section 7a

(1) A banking licence shall expire:

(a) on the day when a ruling to withdraw such banking licence becomes legally effective;

(b) on the day as of which the bank is wound up;

(c) on the day as of which, under a resolution of the general meeting, the hitherto existing bank

ceases to carry on activity for which a banking licence is required;

(d) on the day of deletion of the bank from the Commercial Register.

(2) A banking licence granted to a foreign bank for its branch office shall also expire on the day

as of which a foreign bank terminates activity of its branch on the territory of the Czech

Republic, and also on the day as of which a foreign bank's banking licence becomes

inoperative (is withdrawn) in the country where it has its headquarters (registered office,

seat).

PART THREE

ORGANIZATIONAL STRUCTURE

OF A BANK

Section 8

(1) A bank must have its statutory organ (Note 1) and supervisory board.



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(2) The statutory organ shall have at least three members who must be executive employees of the

bank.

(3) A member of the statutory organ of a bank may not concurrently be another business (legal)

entity's statutory organ or a member of its statutory organ, or a member of another business

(legal) entity's supervisory board. An employee of a bank may not be the statutory organ or a

member of the statutory organ of another business legal entity. This shall not apply to

membership of:

(a) a member of the bank's statutory organ in the statutory organ or supervisory board of a

financial institution controlled by the bank, in a legal entity licensed to organize demand and

supply of securities and in an enterprise providing auxiliary banking services [section

17a(5)];(b) an employee in the statutory organ of an enterprise providing auxiliary banking services, or

performance of the office of this enterprise's statutory organ.

(4) The powers (authority) of the statutory organ and the supervisory articles of association*

of

the bank board roust be defined in the concerned.

(5) Authority (responsibilities) entrusted to the board of directors of a joint stock company by the

Commercial Code may not be transferred to the supervisory board of a bank.

Section 8a

Members of the statutory organ of a bank who, as holders of such office (function),

breach the duties ensuing to them from legislative provisions or the articles of association shall

be liable jointly and severally for damage arising to the bank’s creditors if the said breach of

duty results in the bank being unable to meet its due liabilities (payables).

Section 9

(1) Each bank shall also regulate in its articles of association:

*in Czech "stanovy", also sometimes translated as “by-laws.”



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(a) its organizational structure;

(b) the powers (authority) and responsibilities of its managing employees;

(c) the powers and responsibilities of other employees of the head office, branches and other

organizational units of the bank who are authorized to carry out banking transactions; and

(d) its internal inspection system.

(2) Notarized copies of each bank's articles of association, including amendments, shall be kept

at the Czech National Bank.

Section 10

Banks and branches of foreign banks shall be entered in the Commercial Register and

they shall lodge a copy of the appropriate extract from the Commercial Register with the Czech

National Bank.

PART FOUR

OPERATIONAL REQUIREMENTS

Section 11

(1) At their premises banks and branches of foreign banks shall provide written information in

Czech on the conditions for accepting deposits, granting credits, and other banking

transactions and services, without prejudice to the provisions of section 273(1) of the

Commercial Code.

(2) Information on services, which consist in accepting pecuniary (i.e. monetary) means from

clients, must expressly specify the relationship between the acceptance of deposits and their

insurance.



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(3) A bank shall publish quarterly data on the composition of its shareholders, and on its activity

and financial indicators in the scope and manner determined in a Regulation of the Czech

National Bank. A branch of a foreign batik shall also provide information about its activity

and financial indicators in the scope and manner determined in a Regulation of the Czech

National Bank.

(4) A bank and a branch office of a foreign bank shall keep a registry of all contracts concluded

with all clients in such a manner as to be able to submit to the Czech National Bank

appropriate contractual documents, in an officially verified Czech translation, without delay,

when requested to do so by the Czech National Bank.

Section 11a

(1) A bank authorized (licensed) to issue mortgage bonds ("hypotecni z'astavni listy") shall

publish the commercial. conditions for granting mortgage credits (mortgage loans;

"hypotecni uvery") in accordance with a separate Act (Note la). The bank must stipulate in

these commercial conditions the procedure to be followed should a debtor default on

repayment of credit or interest, and the circumstances in which, because of a change in the

debtor's situation, the bank is entitled to require premature repayment of the granted credit.

(2) A bank cannot reserve for itself the right to demand, before maturity, repayment of a credit

granted by the bank under subsection (1), should the bank be wound up in connection with its

liquidation.

Section 12

(1) When conducting its activity, a bank shall proceed with prudence, in particular it shall

execute transactions in a manner which will not harm its depositors' interests with regard to

return on their deposits and shall not put its security and stability to risk.



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(2) A bank may not conclude contracts on terms which are conspicuously disadvantageous to the

bank, particularly those binding the bank to render economically unjustified fulfilment or

fulfilment which is obviously inadequate in relation to the countervalue. Contracts concluded

contrary to this provision shall be invalid.

(3) Each bank shall maintain a fixed ratio of capital and reserves (provisions) to its assets

(section 15), or, as the case may be, to its liabilities.

Section 13

Banks shall ensure that:

(a) the amount of credits granted to a single debtor, or a group of economically interlinked

debtors, does not exceed a fixed percentage of the bank's capital and reserves (section 15);

(b) the sum of credits granted to the ten largest debtors, or groups of economically interlinked

debtors, does not exceed a fixed percentage of the total volume of the bank's capital and

reserves.

Section 14

Banks shall constantly maintain their solvency (liquidity) in both Czech and foreign

currencies. For this purpose, they shall observe the determined rules concerning liquidity and

prudential operation (section 15). These rules may in particular regulate:

(a) the minimum level of liquid assets, or of a group of such assets, in relation to the bank's

assets or liabilities, or in relation to a portfolio of assets or liabilities; this duty may be

satisfied by keeping a fixed part of the bank's resources deposited with the Czech National

Bank;

(b) the limits and terms (conditions) applying to certain types of credits or investments, deposits,

guarantees and liabilities;

(c) limits and terms (conditions) aimed at co-ordinating the maturity of the bank's assets and

liabilities;



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(d) the limits and terms applying to unsecured foreign exchange positions.

Section 15

The Czech National Bank shall stipulate the rules referred to in sections 12 to 14, along

with the meaning of capital, reserves, (provisions), assets and unsecured foreign exchange

positions, and the extent to which branches of foreign banks are to observe these rules, in a

Regulation (Note 3) which it shall promulgate in the Collection of Laws.

Section 16

(1) A bank shall apply for a prior approval of the Czech National Bank:

(a) for the conclusion of a contract on the sale of an enterprise or its part;

(b) for a resolution of the general meeting of shareholders to windup the bank;

(c) for a merger of the bank with a bank being wound up;

(d) for the reduction of the bank's registered capital, unless it concerns reduction of the

registered capital for the purpose of covering a loss;

(e) for a resolution of the general meeting under section 7a(1)(c).

The Czech National Batik shall ask for an opinion of tire Ministry of Finance before making

a decision to grant a prior approval under letters (b) and (c). Acts in law (legal transactions)

and a resolution of the general meeting adopted without the required prior approval are

invalid.

(2) A bank shall inform the Czech National Bank:

(a) of envisaged amendments to its articles of association concerning facts which must be

defined in the articles of association under the Commercial Code or this Act;

(b) of proposals for personnel changes in its statutory organ and in the posts of its managing

employees;

(c) of any intention to open a branch office or representation office abroad;

(d) of any intention to found a legal entity abroad or to have a capital interest in it.



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(3) The provisions of a separate Act (Note 4) shall not be affected by the provisions of

subsection (1)(b) and (c).

Section 17

(1) A bank may not exercise control over another legal entity, unless it is a bank under this Act, a

financial institution or an enterprise providing auxiliary banking services.

(2) A bank's qualified (capital) interest in a legal entity, unless it is a bank under this Act, a

financial institution or an enterprise providing auxiliary banking services, may not exceed:

(a) 15% of the bank's registered capital in a single legal entity;

(b) 60% of the bank's registered capital in all the legal entities in total.

(3) The limit under subsection (2) shall not apply in the case of:

(a) a bank's qualified interest in a legal entity which has arisen as a .result of its receivable

against the legal entity, provided that the bank's ownership interest has been held for no

longer than one year since its acquisition;

(b) a bank's qualified interest which is related to the bank's involvement in issuing securities and

supplying associated services, provided that its qualified capital interest has been held for nolonger than six months since its acquisition.

(4) When a bank acquires a qualified (capital) interest in a legal entity, the bank shall notify the

Czech National Bank of such acquisition without undue delay.

Section 17a

(1) "Control" shall mean a direct or indirect holding in another legal entity exceeding 50% of its

registered capital or voting rights, or the right to appoint or recall a majority of members of

the other legal entity's statutory organ, supervisory board, directors, or the possibility to

exercise a decisive influence on the other legal entity's management, in which the person is a

partner, shareholder or member, on the basis of a contract concluded with the legal entity, the



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provisions of the legal entity's articles of association, on agreement with the legal entity's

other partners, shareholders or members, or the possibility of exercising a decisive influence

in another manner.

(2) An indirect holding shall mean a capital interest held indirectly, through a legal entity over

which control is exercised.

(3) A financial institution shall mean a legal entity other than a bank under this Act, which

performs any of the activities defined in section 1( l ) and (3) of this Act, or an investment

company, an investment fund, a pension fund or an insurance company engaged in activities

under separate Acts (Note 4a).

(4) A qualified interest shall mean a direct or indirect holding in the legal entity exceeding 10°l0

of its registered capital, or exceeding 10% of the legal entity's voting rights, or exercising a

decisive influence on the legal entity's management.

(5) An enterprise providing auxiliary banking services shall mean a legal entity which provides

services aimed to support business activities of banks.

Section 18

(1) A bank may not engage in transactions with any person with whom the bank has a special

relationship (section 19) if such transactions, because of their nature, purpose or the risk

involved, would not be engaged in with other clients.

(2) A bank may grant credits to the persons referred to in subsection (1) above, or secure the

liabilities of these persons, only if its statutory organ decides to do so on the basis of an

analysis of the banking transaction concerned and the applicant's financial situation.



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(3) The provisions of the Commercial Code on a conflict of interests regulating the granting of

credits and loans, and the securing of liabilities by a joint stock company (Note 4b) shall not

apply to banks.

Section 19

(1) For the purposes of this Act, the following persons shall be regarded as having a special

relationship with a bank:

(a) members of the bank's statutory organ and the bank's employees;

(b) members of the bank's supervisory board;

(c) legal entities which the bank controls, their major shareholders (stockholders) and members

of these legal entities' managements;

(d) persons close (Note 5) to members of the statutory organ and supervisory board, managing

employees of the bank and persons controlling the bank;

(e) legal entities, in which any of the persons listed under (a), (b) and (c) above, holds an

ownership interest in the registered capital which exceeds 10% of the total amount of that

capital;

(f) major shareholders of the bank and any legal entity under their control;

(g) members of the Bank Board of the Czech National Bank;(h) legal entities over which the bank has control.

(2) Major shareholders are understood to be persons (entities) holding a qualified interest in the

bank, on their own or on the basis of concerted conduct (Note 5b) with another person.

Section 19a

(1) Securities trading and trading in the rights attached to securities or derived from

securities under another Act (Note 5a), on own account or using own assets, may be

undertaken only under the most advantageous conditions for the bank, in particular at

the best price which can be attained by exercising expert care.



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(2) A bank shall support the exercise of expert care in particular by:

(a) comparing bid and offer prices relating to individual sales, purchases and other

transactions, or by providing documentary evidence that comparison with other prices

would be inappropriate, or that it was impossible to assess more prices;

(b) documenting the manner in which the transaction was concluded, checking the

objectivity of the recorded data and preventing the risk of own financial losses; .

(c) analyzing the economic benefits of transactions from publicly available information;

(d) preparing an investment strategy and a commercial strategy on the basis of which

individual operations (transactions) will be conducted.

(3) Exercise of expert care (due diligence) by a bank shall in particular mean concluding

deals through automated trading systems, or, as the case may be, in another manner,

which the bank must be able to prove is advantageous for the bank and its clients.

(4) The pro visions of subsections (1) to (3) shall also apply to a branch of a foreign bank.

Section 19b

(1) A bank shall prevent:(a) the exploitation of information acquired in connection with its credit contracts in

investment transactions, and vice versa;

(b) the exploitation of information acquired in connection with investment deals on a

client's account in executing investment transactions on its own account, and vice versa;

unless such information is publicly available.

(2) In order to fulfil its ditties under subsection (1), a bank shall in particular take

measures in its organizational, managing and inspection systems to ensure the

separation of divisions involved in credit transactions and investment transactions

(operations).



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(3) Credit transactions shall mean activities relating to the granting of credits (loans) and

guarantees.

(4) Investment transactions shall mean activities relating to:

(a) investing in securities;

(b) trading in securities;

(c) trading in rights attached to securities or derived from securities;

(d) participating in the issue of securities and providing related services;

(e) managing portfolios of securities including consulting services.

(5) A bank may conclude investment transactions on a client's account only under terms

most favourable for the client, and in particular at the best price (for the client) that

could be attained with the exercise of expert care (due diligence).

(6) A bank shall keep separate records of investment transactions concluded on clients'

accounts.

(7) The provisions of subsections (1) to (6) shall also apply to a foreign bank's branch.

Section 20

(1) A bank may issue shares with attached voting rights only in the form of uncertificated (book-

entered) shares.

(2) In addition to shares with attached voting rights, a bank may issue preference shares.

However, no voting rights are attached to such shares, not even in cases where the

Commercial Code provides otherwise.

(3) A legal entity or an individual aiming to acquire a direct or an indirect holding (share) in a

bank which represents no less than 10%, 20%, 33% or 50% of voting rights, or to increase a

direct or an indirect holding (share) so that it attains or exceeds these limits, is obliged to



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apply for the prior approval of the Czech National Bank. The same duty applies to persons

involved in concerted conduct (Note 5b). The Czech National Bank shall determine the

particulars of the said application in a Regulation (Decree).

(4) A person who reduces his holding (share) in a bank so that a holding which represented

more than 50%, 33%, 20% or 10% of voting rights falls below one of the said limits, shall

report this fact to the Czech National Bank, without delay. A group of persons involved in

concerted conduct (Note 5b) has the same reporting duty. The Czech National Bank shall

determine the particulars of such reporting (notification) in a Regulation (Decree).

(5) In cases when limits render subsection (3) are exceeded because of transference (passage) of

a right, the person whose holding is involved has a duty to report this fact to the Czech

National Bank, without delay.

(6) An applicant who applies for approval under subsection (3) shall be considered in the same

manner as a founder of a bank in the proceedings for a banking licence and shall be subject

to similar proceedings.

(7) In cases which warrant special consideration, approval under subsection (3j may be granted,

even subsequently.

(8) Acquisition of a holding contrary to subsection (3) shall not cause invalidity of a (relating)

act in law (legal transaction).

Section 20a

(1) In cases when a holding in a bank was acquired without the prior approval of the Czech

National Bank under section 20(3), and approval under section 20(7) was not granted, and

also when tire influence of a particular shareholder will, voting rights is detrimental to the

proper and prudent business activity of the bank, or when the exercise of such influence by



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the shareholder can reasonably be expected, the Czech National Bank may suspend, within

the administrative proceedings, exercise of the following shareholders' rights:

(a) Participating and voting at the general meeting of shareholders;

(b) the right to ask for the convening of an extraordinary general meeting;

(c) the right to file a petition with the court for the invalidation of a general meeting's resolution.

Suspension may only apply to the above-mentioned rights. Submission of a remedial

instrument against a ruling suspending the shareholder's rights shall have no suspensory effect.

(2) A bank shall submit to the Czech National Bank an extract front the issuer's register of

uncertificated shares, made as at the day which by seven days precedes the day on which a

general meeting will be held. The extract from the issuer's register must be delivered to /it e

Czech National Bank on the same day that it was made. The Czech National Bank will either

approve the list of shareholders in the extract from the issuer's register or, without undue

delay, indicate those shareholders whose rights have already earlier been suspended or

those shareholders with regard to whom it has established a reason for suspending their

shareholders 'rights, and it will return the extract to the bank no later than the day which

precedes the day when the general meeting is held.

(3) A bank may not admit to the general meeting both a person indicated by the Czech National

Bank in the extract from the issuer's register under subsection (2) and a person who is not

included in the extract from the issuer's register, or proxies empowered by the said persons.

If the Czech National Bank indicates persons in respect of whom it has found a new reason to

suspend their shareholders' rights, administrative proceedings under subsection (1) are

thereby commenced and the indication of such persons in the extract (statement) has the

effects of a preliminary measure (Note 11).

(4) A general meeting of a bank may not be held without a written opinion of the Czech National

Bank on an extract from the issuer's register.



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(5) The Czech National Batik may petition a court to invalidate a resolution of a bank's general

meeting, if it is contrary to the legislative provisions or articles of association.

(6) Shares which are held by a shareholder whose shareholder's rights )cave been suspended

shall not be considered as shares with attached voting rights for the period during which

they are held by the same person. The prior approval of the Czech National Bank under

section 20(3) of this Act shall not be required for a resulting proportionate increase in the

other shareholders' voting rights.

(7) The Securities Centre, as well as other persons authorized to perform activities entrusted to

the Securities Centre under a separate Act (Note 4c), shall provide art extract front the

issuer's register (records) if the issuer is a bank, to the Czech National Bank at any time it so

requests.

Section 20b

(1) Banks or: the territory of the Czech Republic effect mutual transfers of financial means in

Czech currency, according to individual items on the basis of their clients' instructions,

exclusively through the interbanking payments technical system operated by tire Czech National Bank. For this purpose the Czech National Bank keeps for each bank an

interbanking payments account in Czech crowns. An interbanking payments account may not

be an object of an execution of a ruling or preliminary measure. Banks in the Czech Republic

may open mutually their accounts in Czech currency under a Decree of the Czech National

Bank.

(2) A bank shall correct an error in a corrective accounting operation, if it did not account for

the amount or did not use the bank connection in compliance with its client's instructions.

Without undue delay, the bank shall transfer pecuniary means in the correct amount to the

entitled recipient together with interest appropriate under contract, for the period for which

the recipient could not dispose of such pecuniary means. If an account of an unauthorized

(wrong) recipient is held by another bank, the bank which caused the error may, on its own



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initiative, instruct the other bank to withdraw the incorrectly entered amount from the client's

account, and this cart be done within three months of the day when the error was made.

(3) In complying with the principles under subsection (2), the bank keeping the account of the

unauthorized recipient of an incorrectly transferred amount is entitled to withdraw an

amount from his account equal to the corrective settlement operation and recalculate interest

on the pecuniary means, so that the account balance is the same as if the incorrectly

transferred amount had not been received; if the accounting error was caused by another

bank, the bank shall withdraw the pecuniary amount from the client's account when the other

bank so requests and transfer it to the bank.

(4) Corrective entry to the debit of accounts of tax administrators is not permitted; a bank whirl:

causes an error during settlement shall request a refund from the appropriate tax

administrator.

(5) The Czech National Bank shall determine in a Decree (Regulation) the technical procedures

to be followed by banks in corrective settlement.

(6) The provisions of subsections (1) to (5) shall similarly apply to branches of foreign banks.

PART FIVE

ACCOUNTING AND COMMERCIAL

DOCUMENTATION

Section 21

(1) A bank or a branch of a foreign bank shall keep accounts in accordance with a separate Act

(Note 6).



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(2) If a bank holds a capital interest in one or more commercial (business) companies or other

legal entities, and this interest (holding) exceeds 20% of their registered capital, its

accounting records (books of account) shall also contain comprehensive data on such

companies or legal entities.

(3) A bank or a branch of a foreign bank shall keep separate accounting records of transactions

on a client's account and transactions on the bank's account, or on an account of the branch

of a foreign bank. Banks and branches of foreign banks shall keep documents on effected

transactions for a minimum of ten years.

Section 22

(1) Every bank must arrange, through auditors and pursuant to a separate Act, the following:

(a) an audit of its annual financial statements;

(b) an audit of the management of its financial resources in the respective year;

(c) an auditor's report on its annual financial statements and the management of its financial

resources.

(2) Every bank shall notify the Czech National Bank of the names of the auditors selected. TheCzech National Bank may reject these auditors within 30 days of receipt of such notification.

Should the proposed auditors be rejected by the Czech National Bank, the bank concerned

shall notify the Czech National Bank of newly selected auditors within 15 days of their

rejection.

(3) Persons who under section 19(1) have a special relationship with the bank concerned may not

be selected as auditors.

(4) If shortcomings have been ascertained, the report under subsection (1)(c) above must

explicitly state the impact of such shortcomings on the bank's financial results and its

liquidity, and on the creation and distribution of its profit or loss.



22

(5) A person responsible for internal inspection (control of a bank) who is subordinate to the

statutory organ may, with its knowledge, initiate an extraordinary session of the

supervisory board and inform it of ascertained facts.

(6) An auditor shall inform the Czech National Bank, without undue delay and with the

bank's knowledge, of significant facts which might negatively influence the bank's

financial results.

(7 ) Duties under subsections (1) to (6) shall similarly apply to branches of foreign banks.

Section 23

(1) Every bank shall publish the data from its annual financial statements, audited under section

22, in a manner laid down in a special Regulation, and for this purpose it shall publish an

annual report.

(2) If a bank's financial result in a current year is a loss, its general meeting shall adopt a

resolution on settlement of the loss from the bank's own resources, when approving such

bank's financial statements for the year.

Section 24

(1) Banks and branches of foreign banks shall prepare and submit to the Czech National Bank

information and background documentation whose content, form and classification, as well

as the manner and time of its submission, shall be determined by the Czech National Bank

(Note 2).

(2) If a bank holds a capital interest in one or more commercial companies or other legal entities

equal to 20% or more of its registered capital, the information and documentation under

subsection (2) above shall also include data on such companies or other legal entities.



23

PART SIX

REMEDIAL MEASURES AND FINES

CHAPTER I

Section 25

Operations of banks and branches of foreign banks are subject to banking supervision

carried out by the Czech National Bank (Note 2).

Section 26

(1) If the Czech National Bank ascertains shortcomings in the operations of a bank or a branch of

a foreign bank, depending on the nature of the ascertained shortcoming(s), it has the

authority:

(a) to demand that the bank or the branch of the foreign bank rectify the shortcomings within a

fixed time-limit, in particular by restricting certain licensed activities or terminating

unlicensed activities, making personnel changes in the management of the bank or the branch

of the foreign bank, and creating the necessary financial adjustments and provisions

(reserves), or to demand that the bank reduce its registered capital to the required extent,

replace members of the supervisory board or use the profit after taxation to supplement

preferentially the reserve funds or increase its registered capital;

(b) to change the banking licence by excluding or restricting certain activities stipulated in

section 1(3);

(c) to order an extraordinary audit at the cost of the bank or branch of the foreign bank;

(d) to impose enforced administration;

(e) to impose fines of up to CZK 50 million;

(f) to reduce the bank's registered capital by an amount equal to the loss if, after settlement from

the reserve and other funds, the loss exceeds 20% of the bank's own capital.



24

(2) The procedures under subsection (1)(b) to (f) shall be applied if a requirement under

subsection (1)(a) is not complied with; depending on the nature of the ascertained

shortcoming(s), and particularly if there can be no delay, these procedures may be applied

even if there was no requirement (for a corrective measure) under subsection (1)(a). The

procedure under subsection (1)(d) may not be applied to a branch of a foreign bank.

(3) Shortcomings in operations are:

(a) a violation of the terms of-the banking licence

(b) a violation of this Act, separate Acts, legal regulations and orders issued by the Czech

National Bank;

(c) conduct of transactions in a manner which is detrimental to the depositors' interests, or which

jeopardizes the reliability (safe functioning) and stability of the banking system;

(d) management of a bank by persons who are not sufficiently qualified or who lack civic

integrity (i.e. whose character is not regarded as unimpeachable);

(e) a shortfall in the sum total of financial reserves and financial adjustments created by a bank

against the risks related to the volume of classified assets declared by the bank.

(4) The legislation on administrative procedure (proceedings) shall apply to cases involving

amendments to a banking licence, the imposition of enforced administration, the termination

of enforced administration, the ordering of an extraordinary audit , the imposition of fines

and the reduction of registered capital, unless this Act provides otherwise.

(5) The bank concerned is the only party to such administrative proceedings.

(6) The proceedings may also be initiated by serving an appropriate ruling (decision).

(7) The Czech National Bank shall serve the ruling by handing it over to a member of the bank’s

board of directors, or to a member of its supervisory board or a person authorised to manage

the bank or the foreign bank’s branch. If such a person refuses to receive the ruling, it is

considered as served at the moment of refusal.



25

(8) An application for a review of a previous ruling (decision) may be submitted, but this shall

not have a suspensory effect. A ruling on the application shall be made by the Bank Board of

the Czech National Bank.

(9) A period of at least 24 hours must be made available to comply with the served ruling.

(10) The Czech National Bank may also impose a fine under subsection (1)(e) above on persons

who have violated the provisions of section 3:

(11) The imposition of fines under subsection (1)(e) shall not affect responsibility as defined in

other Acts or Regulations.

(12) Fines imposed under subsection (1)(e) shall be revenue of the state budget. Such fines may

be imposed within one year of the shortcoming(s) being ascertained, but no later than ten

years from the day on which such shortcoming(s) arose.

Section 26a

(1) If the Czech National Bank ascertains that the ratio of a bank's capital to the average of risky assets is lower than two-thirds of the ratio determined by the Czech National Bank

(Note 6a), it shall impose one or more of the following remedial measures in

administrative proceedings on the bank:

(a) an increase in registered capital, so that the ratio of capital to the average of risky assets,

as determined by the Czech National Bank (Note 6a), is attained;

(b) a restriction of the acquisition of assets to those whose risk factor is less than 100% (Note

6a);

(c) a prohibition on the acquisition of holdings (shares) in the registered capital and voting

rights of other legal entities, except for contracts concluded prior to the imposition of this

measure, and also on the founding or acquisition of other legal entities or their

organizational units (divisions);



26

(d) a prohibition on the provision of credits to persons who have a special relationship to the

bank;

(e) a prohibition on the application of interest rates on deposits which exceed the current interest

rates on deposits of comparable amounts and maturity, as ascertained by the Czech National

Bank.

(2) Concurrently with the measures under subsection (1), the Czech National Bank may apply

remedial measures and sanctions under section 26(1).'

Section 26b

The statutory organ or the supervisory board shall immediately inform the Czech

National Bank if it ascertains that the bank is or will become insolvent, or that the bank has

suffered or is likely to suffer a loss which could or might cause a decrease in the ratio of the

bank's capital to the assets of average risk below two-thirds of the ratio determined by the Czech

National Bank (Note 6a).

CHAPTER II

ENFORCED ADMINISTRATION

(ADMINISTRATION ORDER)

Section 27

(1) A decision imposing enforced administration ("nucena sprava") shall include:

(a) the reasons for its imposition;

(b) the name, surname and personal number of the administrator;

(c) if necessary, restrictions or prohibitions imposed on the acceptance of deposits, the granting

of credits or the performance of other activities.



27

(2) Costs related to performance of enforced administration are met from the bank's assets and

considered as expenses of the bank incurred in generating, assuring and maintaining income

for the purpose of corporate income tax under a separate Act (Note 6b).

(3) If a law requests verification of a general meeting's resolution by a notarial record, the

decision of the administrator on such matter mast be in the form of a notarial record.

Section 28

(1) The Bank Board of the Czech National Bank shall appoint and recall an administrator and

determine his remuneration for carrying out the enforced administration. The administrator is

an employee of the Czech National Bank.

(2) The administrator is entitled to co-opt other persons in order to perform the enforced

administration, except for persons having a special relationship to the bank under section

19 of this Act. Persons who are the bank's debtors, or who are in an employment

relationship will: another bank, may not be co-opted for this purpose. The co-opted

persons are entitled to acquire information about matters which are subject to

confidentiality in the bank concerned. They are obligated to keep such matters secret.

Section 29

(1) All activities of the organs of the bank concerned shall be suspended upon service of a

written ruling imposing enforced administration. As of that moment, the ruling takes general

effect (i.e. against all persons). The administrator shall have the status of statutory organ,

with the right to convene a general meeting which he is entitled to attend.

(2) The administrator shall make decisions on matters which fall within the responsibility of the

general meeting but only with the prior consent (approval) of the Czech National Bank.



28

(3) If the bank's situation so requires, with the prior approval of the Czech National Bank which

requests the opinion of the Ministry of Finance, the administrator may suspend or completely

halt the use by depositors of their deposits in the bank.

(4) If the administrator establishes that the bank is overburdened with debts, he has the right,

with the prior approval of the Czech National Bank, to file a petition for a composition

arrangement or adjudication of a bankruptcy order.

(5) From the appointment of the administrator for enforced administration until the termination

of such enforced administration, performance of the bank's statutory organ `shall be

suspended. The administrator shall have the statutory organ's status.

Section 30

The Czech National Bank may impose enforced administration if shortcomings in the

bank's activities threaten the stability of the banking system and the shareholders have not taken

the necessary steps to remedy the shortcomings. The Czech National Bank shall request the

opinion of the Ministry of Finance on the imposition of enforced administration.

Section 31

(1) Enforced administration shall be entered in the Commercial Register (Note 7a). Application

for such entries shall be filed by the Czech National Bank.

(2) Acting on an application filed by the Czech National Bank, the court shall enter the

imposition of enforced administration, the recall of the administrator and appointment of a

new administrator into the Commercial Register.

(3) Within three days of their delivery, the court shall decide on entries, proposed by the

administrator, into the Commercial Register.



29

Section 32

(1) During the period of enforced administration the Czech National Bank may provide

financial assistance to the bank in question in order to overcome its temporary lack of

liquidity.

(2) An entitlement to repayment of financial assistance, granted under subsection (1), shall take

precedence over all of the bank's other liabilities.

Section 33

The period of enforced administration shall terminate:

(a) upon service of a ruling of the Czech National Bank to terminate it;

(b) upon adjudication of a bankruptcy order (in respect of the bank concerned); or

(c) upon expiry of a period of 24 months from the day when enforced administration was

imposed.

CHAPTER III

WITHDRAWAL OF A BANKING LICENCE

Section 34

(1) If serious shortcomings persist in the activity of a bank or a branch of a foreign bank;

the Czech National Bank shall, after asking for the opinion of the Ministry of Finance,

withdraw (revoke) its banking licence. The withdrawal of a licence need not be

preceded by the bank's enforced administration.

(2) A banking licence stay also be withdrawn if :





31

company, if a banking licence was withdrawn from the bank. A court shall decide on the

petition of the Czech National Bank within 24 hours of its receipt.

(2) An individual or a legal entity may become a liquidator. The provision of section 71(1)(last

sentence) of the Commercial Code shall not apply. A person who has or had a special

relationship to the bank, or who is or was the bank's auditor or who participated in the

bank's audit in any manner, may not become a liquidator.

(3) Individuals who learned data during the liquidation which is confidential are obliged to

maintain confidentiality under section 39 of this Act, as appropriate.

(4) A liquidator shall submit to the Czech National Bank, without delay, accounting documents

and reports as he prepares them during the liquidation in accordance with the Commercial

Code.

(5) A liquidator shall file a petition with the court for the in validation of legal acts effected ore

tire bank's behalf, contrary to the provision of section 12(2), within tire 12 months which

preceded the day as of which its banking licence was withdrawn. Fulfilments provided on the

basis of contracts which were invalidated by the court must be returned to the bankrupt's

estate.

PART EIGHT

JOINT PROVISIONS

Section 37

Banks provide services to their clients (customers) on the basis of contracts. Banks shall

demand proof of the client's identity for every transaction exceeding CZK 100,000 and for the

rental of safe-deposit boxes. The bank may refuse to provide services to anonymous clients.



32

Section 38

(1) All banking transactions and banking pecuniary services, including (clients') balances of

accounts and deposits, shall be regarded as confidential.

(2) A bank shall only report on matters which are subject to confidentiality to the persons

entrusted with the supervision of banking operations. The exchange of information between

the Czech National Bank and supervisory banking organs and similar institutions in other

states shall not be regarded as a violation of confidentiality, if it concerns information on

entities operating or planning to operate on the territory of the respective state.

Communication of data on a client and his transactions when this is related to giving notice

of a criminal act (offence), or notifications under the reporting duty determined by another

Act (Note 10) shall not be considered as a violation of the duty to maintain banking

confidentiality.

(3) A report on matters relating to a certain client, when these are subject to banking

confidentiality, may be provided by the bank without the client's consent only if requested in

writing by:

(a) a court for the purposes of civil law proceedings (Note 8);(b) an authority engaged in criminal proceedings under the conditions stipulated in a separate Act

(Note 9);

(c) a financial (i.e. fiscal, tax) authority for the purpose of tax proceedings to which the client is a

party; or

(d) the Ministry of Finance and the Securities Commission when carrying out supervision under

another Act (Note 9a);

(e) the Ministry of Finance under the conditions stipulated in a separate Act (Note 10);

(f)*social security authorities, if the matter concerns proceedings on social security and state

employment policy premiums (contributions) owed by a client; the same applies to the

exacting of such premiums (contributions);

*This amendment came into effect on 1 January 1998.



33

(g)**

health insurance companies, if the matter concerns proceedings on health insurance

premiums (contributions) owed by a client; the same applies to the exacting of such premiums

(contributions);

The written request must include data necessary for the bank's identification of the matter

concerned.

(4) Repealed

(5) The bank is entitled to reimbursement of actual costs incurred in connection with providing a

report under subsection (3)(a).

(6) A bank is obliged (even without a client's consent) to inform a person authorized to

implement a ruling about the banking connection of its client, i.e. a bank account, an

identification code of a bank or a branch office of a bank and identification data on its

client, who is the account owner. The bank has the same duty in respect of a person

who proves that, due to the person's own faulty instruction to a bank or a branch

office of a bank, this person suffered a damage, and that without such data the person

is unable to claim his right under the Civil Code to the surrender of (the resulting)

unjust enrichment. The bank is entitled to a payment covering its material costs in

connection with the provision of the information.

(7) Provisions of subsections (1) to (6) apply to branches of foreign banks, as appropriate.

(8) A bank's duty to maintain professional confidentiality shall be restricted if a client is in

default with payments to the bank for more than 60 days, or if lie violates his obligations

agreed in the contract or determined by the law. In such a case, the bank may inform other

banks, third persons or the public of the breach of contract by the client, however it can only

provide the client's name (description) and an indication of the breached duty.

**This amendment came into effect on 30 June 1998.



34

(9) A client may prevent a bank applying the above right by concluding an agreement on remedy

with the bank within 30 days of the breach of his duties. A bank is not obligated to accept

such an agreement. It may take advantage of its right under subsection (8), if the client does

not conclude an agreement within the time-limit, or if subsequently he does not comply with

it. A client may make use of the opportunity under this subsection only once in a calendar

year.

Section 38a

(1) Banks may inform each other about bank account numbers, identification data on accounts

owners and on matters concerning the payment prospects and credibility of their clients,

even through a legal entity which is not a bank. Only banks may have a capital interest in

such a legal entity; the banks shall ensure that the legal entity maintains confidentiality of

the acquired data and protects the data from misuse. A bank shall treat the data it acquires

of: clients of another bank in the same way as data on its own clients.

(2) A client is entitled to know what information is kept in the data system on him or a legal

entity represented by him. A client is entitled to be provided with a copy of the extract

(statement) and has to pay the actual cost for making such copy.

(3) A bank's report on its suspicion that a crime or an offence has been committed is sent to the

state prosecutor, police or other relevant authorities, and may not be considered as a

violation of the provisions of section 38.

Section 39

(1) Bank employees, supervisory board members and persons involved in banking supervision

shall maintain professional confidentiality in business matters concerning the interests of the

bank and its clients. The statutory organ may relieve the above-mentioned persons of their

duty in this respect, for the purposes stipulated in section 38(2), (3) and (6).



35

(2) The duty to maintain confidentiality continues even after the termination of an employment

or similar relationship.

Section 40

(1) An applicant shall submit his written application for a banking licence, or its amendment, or a

written application seeking approval under this Act, to the Czech National Bank.

(2) A ruling on an application seeking amendment of a particular banking licence shall be

adopted by the Czech National Bank, which shall ask the Ministry of Finance for an opinion.

(3) A ruling on an application seeking approval under this Act shall be made within three

months, and a ruling on an application for a banking licence or an application for an

amendment of a banking licence, shall be made no later than six months from receipt of the

completed application.

(4) The Czech National Bank may request necessary information on participants in the

proceedings from relevant authorities, if it concerns proceedings on granting a banking

licence or approval under section 20(3) of this Act.

Section 41

(1) The Bank Board of the Czech National Bank shall decide on a petition seeking a review

of a previous ruling of the Czech National Bank. The Bank Board of the Czech National

Bank, which shall ask the Ministry of Finance for an opinion, shall decide on such a petition

after asking for cite opinion of the Ministry of Finance. The filing of the petition shall not

have a suspensory effect.

(2) Unless this Act stipulates otherwise, the provisions on administrative procedure (Note 11)

shall apply to procedure (proceedings) concerning any petition (application) for a banking

licence or any withdrawal (revocation) of the licence under this Act.



36

PART NINE

INSURANCE OF DEPOSITS

Section 41a

(1) The Deposits Insurance Fund*

(in Czech "Fond pojisteni vkladu"; hereafter "the Fund") is

established under this Act as a legal entity. The Fund shall be entered into the Commercial

Register.

(2) The Fund is not a state fund in the meaning of a separate Act (Note 12). Insurance of deposits

shall not be governed by statutory provisions on insurance.

(3) All banks and branches of foreign banks (hereafter in this Part "banks") are obligated to

participate in the system of insurance of deposits and to contribute to the Fund to the extent

stipulated in this Act.

(4) The Fund's sources shall consist of contributions from banks, yields on financial investments,

repayable financial assistance, interest-free credits, and proceeds from completed bankruptcy

and liquidation proceedings.

(5) The Fund's sources may only be used to provide compensation to deposit owners (hereafter

"depositors") under the conditions stipulated in this Act, and to pay installments of repayable

financial assistance and interest-free credits. The cost of the Fund's operations shall be met

from the yields on financial investments.

Section 41b

(1) The Fund shall be managed by a board comprising five members.

*similar to the Deposit Protection Fund in the UK and the Bank Insurance Fund in the USA



37

(2) The Minister of Finance shall appoint and recall the chairman, vice-chairman and other

members of the board.

(3) Members of the board shall be appointed by the Minister of Finance for a period of five

years, and they can be re-appointed. One member shall be appointed each year. Members of

the board are not entitled to remuneration for their work on the board.

(4) If a member of the board terminates his membership in the board prior the end of his

period of tenure, a new member of the board shall be appointed and his period of

tenure shall terminate on the same day as it would terminate in the case of his

predecessor.

(5) At least one member of the board shall be appointed from among employees of the Czech

National Bank; the nomination shall be submitted by the Czech National Bank. At least two

members of the board shall be appointed from among members of the boards of directors of

banks. A member of the board is entitled to reimbursement of costs incurred by him in

connection with the performance of his duties.

(6) Details of the activities and competence of the Fund shall be provided in its statutes, which

shall be issued by the board after prior approval by the Ministry of Finance.

Section 41c

(1) Insured deposits are the deposits, including interest, of:

(a) individuals, kept in Czech crowns in the full name, address and date of birth or the personal

number of the depositor, or his identification number;

(b) legal entities, kept in Czech crowns in the commercial (business) name or designation of the

legal entity, its seat (registered office), and in the case of Czech legal entities, also their

identification number, except for the deposits of banks, branch offices of foreign banks and

financial institutions.



38

(2) A bank's annual contribution to the Fund shall be an amount equal to 0.5% of the volume of

insured deposits at 31 December of the previous year, including the interest to which the

depositor is entitled at the same day. A purchased security issued by a bank (e.g. a certificate

of deposit, letter of deposit or other bond) shall not be an insured deposit.

(3) The annual contribution of a housing construction savings bank ("stavebni sporitelna") to the

Fund shall amount to 0.1% of the average total sum of insured deposits of those participating

in the housing construction savings scheme in the preceding year, including interest accruing

to the depositors in such year. The average volume of insured deposits is computed

according to insured deposits in each quarter of the preceding year, without including the

state contribution for construction.

(4) A bank is obligated to pay its contribution to the Fund for the previous year no later than 31

January of the current year.

Section 41d

(1) Compensation for an insured deposit shall be paid to the depositor from the Fund, if the Fund

receives written notification from the Czech National Bank, endorsed by the Ministry of Finance, that the bank is unable to meet its obligations (payables) to the depositor under the

statutory and contractual conditions (terms).

(2) In agreement with the Ministry of Finance and the Czech National Bank, the Fund shall fix a

date on which payments from the Fund will commence and publish it in an appropriate

manner.

(3) The suspension of transactions involving depositors' deposits under enforced administration

[section 27 or 29(3)] shall not be a reason for making compensation payments from the Fund,

unless the enforced administration lasts longer than 90 days.



39

Section 41e

(1) All of a particular client's insured deposits at a bank, including his share of accounts kept for

two or more co-owners, shall be aggregated when computing compensation. A co-owner's

share of an account shall be calculated as the total sum in the account divided by the number

of co-owners. The amount shall be reduced by payables in Czech crowns due to the bank

from the depositor concerned. The insured deposits shall also include interest calculated at

the day on which compensation payments from the Fund commence.

(2) 90% of the amount computed under subsection (1), but not exceeding 90% of CZK 400,000

per depositor at a single bank, shall be compensated to each depositor.

Section 41f

(1) Pecuniary means of natural persons (individuals) placed in official custody (Note 13) and

kept in a single account shall be regarded as insured deposits under a special regime.

(2) When an account is opened, or when a first transaction relating to an already existing account

is effected, the depositor shall inform the bank in writing that the pecuniary means of more

persons are being deposited in the account. After such notification, the bank shall treat

deposits in the account in the same manner as any other insured deposits.

(3) When the amount of compensation due from the Fund in respect of deposits in the account is

being calculated, the depositor shall submit to the Fund details of how the deposits are

distributed among individual persons and the amounts belonging to each of them, and prove

the accuracy of such data. The depositor shall pass the said data to the Fund.

(4) Compensation for such deposits shall be paid in the same amount as if each of the

aforementioned persons had kept the pecuniary means in his own account.



40

Section 41g

(1) The place and method of compensation payments from the Fund shall be determined by the

Fund, in agreement with the Ministry of Finance and the Czech National Bank.

(2) In co-operation with the Ministry of Finance, the Fund shall ensure that the public is

informed of arrangements under subsection (1).

(3) The following persons are not entitled to compensation from the Fund in respect of their

deposits:

(a) persons who by their crimes (for which they were finally sentenced in the criminal

proceedings by the court) caused partly or fully the inability of the bank in question to meet

its liabilities;

(b) persons having a special relationship with the bank in question, except for persons defined in

section 19(1)(e);

(c) owners of deposits created in connection with legalization of the proceeds of criminal

activity, for which they were finally convicted by the court in the criminal. proceedings.

(4) The Fund shall stop deposit compensation payments to the persons defined in subsection(3)(a) for the period of criminal proceedings against these persons relating to their criminal

activity, which may relate to the bank's inability to meet its liabilities (insolvency). The Fund

shall also stop deposit compensation payments in respect of which it becomes obvious

during criminal proceedings that they are deposits under subsection (3)(c).

(5) The duty to pay a contribution to the Fund on deposits of persons defined in subsection (3)

remains hereby unaffected.

(6) Increases in insured deposits occurring on the basis of internal transfers between individual

accounts kept by the same bank after the day when the bank stopped making due payments

because of the insolvency shall not be taken into account when calculating an amount to be

paid to the depositor from the Fund.



41

Section 41h

(1) As of the day when payments from the Fund commence, a depositor's claim against the bank

shall be reduced by an amount equal to compensation which he is entitled to receive from the

Fund.

(2) As of the day stipulated in subsection (1), the Fund becomes a creditor of the bank in a sum

corresponding to the depositors' rights to,. receive fulfilment from the Fund.

(3) Any depositor's right to compensation (fulfilment) from the Fund shall become statute-barred

upon expiry of five years from the day set for commencement of payments from the Fund.

Section 41i

If the Fund's resources are insufficient for effecting the statutory compensation payments,

the state shall provide the Fund with 50% of the pecuniary means needed in the form of

repayable financial assistance, and the Czech National Bank shall provide the other 50% in the

form of an interest-free credit.

Section 41j

(1) The Fund may invest pecuniary means in:

(a) government (state) securities;

(b) securities which are guaranteed by the government state;

(c) treasury bills issued by the Czech National Bank.

(2) The Fund may also deposit pecuniary means with the Czech National Bank on an interest-

free basis.



42

Section 41k

If the Fund is provided with repayable financial assistance or interest-free credit under

section 41i, the banks' contribution to the Fund shall be increased to double the percentage rate

stipulated in section 41c(1), with effect from the year following the year in which the credit

(loan) was provided. In the year following the year in which repayable financial assistance or

interest-free credit under section 41i is paid off, the contribution shall be reduced to the

percentage rate stipulated in section 41c(1).

PART TEN

INTERIM AND CONCLUDING

PROVISIONS

Section 42

Legal entities operating as banks or savings banks under Act No. 158/1989 Coll. on

Banks and Savings Banks shall be regarded as banks under this Act as of the effective date*

of

this Act (No. 21/1992 Coll.).

Section 43

Credits granted by banks under previously effective statutory provisions shall be

considered as credits granted under this Act.

Section 44

Repealed

*see section 47



43

Section 44a

The government (state) is liable for the liabilities of Konsolidacni banka, Praha, the state

financial (pecuniary) institution.

Section 45

If under an Act or a Decree issued prior to the effective date of this Act, a bank must

grant credits on fixed terms (conditions), and as a result it suffers a financial loss, the bank shall

have the right to compensation from the state budget to which it contributes taxes or amounts

levied.

Section 46

The Act on Banks and Savings Banks (No. 158/1989 Coll.) is hereby repealed.

Section 47

This Act (No. 21/1992 Coll.) takes effect as of 1 February 1992.

(Act No. 264/1992 Coll. came into effect on 1 January 1993;

Act.No. 96/1993 Coll. came into effect on 1 April 1993;

Act No. 292/1993 Coll. carne into effect on 1 January 1994;

Act No. 156/1994 Coll. came into effect on 29 July 1995;



Act No. 61/1996 Coll. came effect on 1 July 1996;

Act No. 306/1997 Coll. came into effect on 1 January 1998;

Act No. 16/1998 Coll. came into effect on 6 February 1998;

Act No. 127/1998 Coll. came into effect on 30 June 1998;

Act No. 165/1998 comes unto effect on I September 1998).



44

Amendment under Act No. 96/1993 Coll.

(in effect as of 1 April 1993)

Unless this Act (No. 96/1993 Coll.) stipulates otherwise, the Provisions of the BankingAct (No. 21/1992 Coll.) and the Czech National Bank Act (No. 6/1993 Coll.) also apply to

housing construction savings banks.

Article II of Act No.16/1998 Coll.

1. Within one year of the day when this Act comes into effect, a bank is obliged to

comply with its provisions in respect of the composition of its statutory organ and

supervisory board, and membership of the bank's employees in statutory organs and

supervisory boards of other legal entities.

2. Within one year of the day when this Act comes into effect, a bank is obliged to

comply with the duty imposed under section 17(1) of the Banking Act, No. 21/1992 Coll., as

amended by this Act.

3. Within three years of the day when this Act comes into effect, a bank is obliged to

comply with the provisions of section 17(2) of the Banking Act, No. 21/1992 Coll., as

amended by this Act, concerning qualified capital interest (holding). Within the first year

of the day when this Act comes into effect, a bank is obliged to reduce the capital holding in

excess of the limits, as registered at the day when this Act comes into effect, by 50% and

within the second year of the day when this Act comes into effect, a bank is obliged to

reduce the capital holding in excess of the limits, as registered on the day when this Act

comes into effect, by 25%. A bank may not further increase any qualified interest, which atthe day when this Act comes into effect, exceeds the maximum permissible level defined in

section 17(2) of the Banking Act, No. 21/1992 Coll., as amended by this Act.



45

4. Within six months of the day when this Act comes into effect a bank authorized to

carry on credit and investment transactions is obliged to implement measures under

section 19b of the Banking Act, No. 21/1992 Coll., as amended by this Act.

5. The Deposit Insurance Fund (hereafter "the Fund") shall pay to individuals and

legal entities who were at 15 December 1995 depositors of Ceska banka (Czech Bank), joint

stock company, Prague, now under liquidation (hereafter "the bank") supplementary

compensation for all claims ensuing from their deposits, including certificates of deposit, or

similar bonds registered with this bank at 15 December 1995 and which are recognized by

the administrator of the bankrupt's estate, up to CZK 4 million to each depositor. When

paying supplementary (additional) compensation, sections 41d to 41g of the Banking Act,

No. 21/1992 Coll., as subsequently amended, shall apply as appropriate and the

supplementary compensation shall be reduced by compensation already paid.

Supplementary compensation shall also be provided to heirs of individuals and legal

successors of legal entities. As of the day when supplementary compensation payments

start to be made, a depositor's claim against the bank shall be reduce by an amount equal

to his right to supplementary compensation from the Fund. As of the said day, the Fund

becomes the bank's creditor in the amount of the rights of the bank's depositors to

fulfilment from the Fund. Payment of supplementary compensations under this provision

shall commence within four months of the day when this Act comes into effect.

Article Vl of Act No.165/1998 Coll.

Transitory Provisions

1. A bank which has not issued shares with attached voting rights exclusively in

uncertificated (book-entered) form is obliged to comply with the duty concerning the type of

shares under section 20 of the Banking Act, No. 21/1992 Coll., as amended by this Act, within

one year of the day when this Act becomes effective.



46

2. A person having a qualified capital holding in the bank on the day when this Act becomes

effective is obliged to inform the Czech National Bank about this fact within one month of the

day when this Act becomes effective.

3. State financial institutions established before the day when this Act becomes effective

shall be governed by the hitherto effective legislative provisions until a separate legislative Act is

adopted, but for no longer than three years of the day when this Act becomes effective.

4. The composition of the statutory organ of the bank has to comply with the requirement

under section 8(2) of the Banking Act, No. 21/1992 Coll., as amended by this Act, within one

year of the day when this Act becomes effective.

Notes:

Note 1: Commercial Code, No. 513/1991 Coll.

Note la: Bonds Act, No. 530/1990 Coll., as subsequently amended

Note 2: Czech National Bank Act, No. 6/1993 Coll., as subsequently amended

Note 3: section 8 of the Act on the Collection of Laws, No. 131/1989 Coll.

Note 4: Act on the Protection of Economic Competition, No. 63/1991 Coll., as subsequently

amended

Note 4a: Investment Companies and Investment Funds Act, No. 248/1992 Coll., as

subsequently amended;

State-contributory Supplementary Pension Insurance Act, No. 42/1994 Coll., as

subsequently amended;

Insurance Act, No.185/1991 Coll., as subsequently amended

Note 4b: sections 161e, 161f and 196a of the Commercial Code

Note 4c: Securities Act, No. 591/1992 Coll., as subsequently amended

Note 5: section 116 of the Civil Code, No. 40/1964 Coll., as subsequently amended

Note 5a: sections 14 and 15 of the Securities Act;

section 1(d) of the Foreign Exchange Act, No. 219/1995 Coll.



Note 5b: section 66b of the Commercial Code

Note 6: Accounting Act, No. 563/1991 Coll.

Note 6a: Decree of the Czech National Bank, No. 3 of 5 October 1995 on the capital adequacy of

banks, promulgated in Issue No. 72/1995 Coll., as amended by Decree of the Czech National

Bank No. 4 of 4 July 1996, promulgated in Issue No. 61/1996 Coll.

Note 6b: Income Taxes Act, No. 586/1992 Coll, as subsequently amended

Note 7: repealed

Note 7a: sections 27 et seq of the Commercial Code

Note 8: Civil Procedures Code, No. 99/1963 Coll., as subsequently amended

Note 9: Criminal Procedures Code, No. 141/1961 Coll., as subsequently amended

Note 9a: e.g. Act No. 530/1990 Coll., as subsequently amended

Note 10: Money Laundering Act, No. 61/1996 Coll.

Note 11: Administrative Procedures Code, No. 71/1967 Coll., as subsequently amended

Note 12: Act on Rules for the Management of Budgetary Resources of the Czech Republic and

Local Authorities in the Czech Republic (Budgetary Rules of the Republic), No. 576/1990 Coll.,

as subsequently amended

Note 13: section 568 of the Civil Code

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