ZAGREB/MUNICH (Reuters) – German bank BayernLB looks likely to win approval from Croatia’s central bank to take over the local arm of Hypo Group Alpe-Adria after agreeing to the central bank’s new demands. A Croatian central bank official told Reuters that BayernLB must apologize to depositors of Rijecka Banka for having absconded from a banking scandal in 2002 and must boost the capital of Hypo’s Croatian unit to gain approval. A source close to the deal said BayernLB agreed to those conditions to smooth out the central bank’s resistance to its acquisition of the Croatian businesses, which brought in a quarter of Hypo’s earnings last year. «BayernLB is going to file a new application for the takeover, which is due to be decided upon in September,» the source close to the deal said, adding that approval was likely then, given the terms agreed with the central bank. BayernLB confirmed that Chief Executive Werner Schmidt met Croatia’s central bank governor, Zeljko Rohatinski, in Zagreb last week and that talks had been constructive. The Croatian central bank official told Reuters that Rohatinski had explained what the new application must contain, in which case the bank will review it and probably approve it at the next board meeting. «The law allows BLB to file another request, which the central bank must consider if it contains some new elements,» the official said. Those elements include the apology, an initial capital boost of the Croatian bank and implementation of strict prudential measures, including a limit on mortgage loans to the private sector. «My impression is that (BayernLB) are really keen to achieve their goal, for which there is no other way but to incorporate those elements in the application, and then there should be no problems,» the official said. BayernLB in May agreed to buy just over half of Hypo for 1.6 billion euros, seeking exposure to Central Europe’s fast-growing market while it is hamstrung at home by peer agreements that limit it to wholesale banking in Bavaria. The deal needs a nod by regulators in all countries where Hypo is active. Croatia last week rejected the deal, citing BayernLB’s previous business record in Croatia. Rijecka Banka, then owned by BayernLB, almost went bankrupt in 2002 due to losses piled up by a foreign exchange trader. The Bavarians declined to bail it out but sold it back to the state. Governor Rohatinski said BayernLB «had abandoned the bank at the most critical time, leaving it up to the Croatian government and central bank to halt the run on the bank.» The German state of Bavaria, BayernLB’s key shareholder, had criticized the rejection. Prime Minister Edmund Stoiber said the decision was «unacceptable» and a «severe strain» for Bavaria’s ties to Croatia, which is seeking to join the European Union.