There can be few Slovak bank chairmen with as much cause for confidence as Tatra Banka's Milan Vrškový. In a banking sector where classified loans represent 23 percent of overall credits, only 1.4 percent of Tatra Banka's portfolio is made up of classified loans. In 1997 its net profits rose 90 percent to 900 million crowns ($26 million).
Tatra Banka's main focus is corporate banking but it is looking to extend its reach to individual customers as well, said Vrškový, who attributes his bank's success to the relationship between ownership and management, an issue he considers crucial in transition economies. "I would say the reason why our bank is doing well is because behind us the owners are squeezing," he said. "This is very important. These domestic banks, do you think they feel the ownership?"
The majority owner of the fully private bank, whose assets were 40 billion crowns at the end of 1997, is Raiffeisen Zentralbank with just over 50 percent. The VÚB controls around 11 percent and the rest is made up of small shareholders.
The questionable health of Slovakia's banking system was cited by Standard & Poor's in their recent decision to cut the country's ratings outlook to negative from stable. "A weak banking system... while beginning to benefit from improved supervision and regulations, continues to have poor and deteriorating asset quality," the agency said.
The OECD also said recently it had "concerns about the health of the banking sector as a whole," especially in the light of the Natonal Bank of Slovakia's decision last December to place the country's third largest bank, IRB, under forced adminstration. All of the largest Slovak banks, Slovenská Sporiteľňa, VÚB and IRB are state controlled although VÚB and IRB are partially privatized and their shares are quoted on the bourse.
Vrškový said it was the strict control mechanisms in place between the owners and tangible result-driven management that ensure the strength of the bank's loan portfolio which is 150 percent covered by prime deposits.
Vrškový claimed there are lessons here for the whole sector. "The banking sector has to be restructured as soon possible," he said. "Banks in the past simply gave credits away. It is impossible to change all of this unless the owners behind you are keeping a tight hold and asking for results."
The relationship between owners and managers is a big issue in a country often criticized for being dominated by "crony capitalism" under which allies of those in power get priority in privatization decisions in return for future favors. All too often, the critics say, big companies are privatized to their own management, and merging owners and managers into one creates little incentive to change habits acquired under communism.
Vrškový maintaned that a well-organized capital market, where ownership and company performance can be easily and publicly assessed, was crucial. "It is necessary to build an infrastructure for ownership," he said. "Once we do not create the conditions for checking and control [in the capital market], we are blind and can't perform."
The Slovak capital market is almost universally condemned for its lack of transparency, poor regulation and inadequate protection of minority shareholders' rights. The Bratislava Stock Exchange Chairman, Marián Sásik, recently admitted the bourse fails to fulfil its main functions, being increasingly mired in insider trading.
Vrškový was confident that his seven year-old bank would continue to prosper despite interbank interest rates hovering between 15 and 25 percent, which last year limited the bank's credit portfolio expansion to around five percent.
