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Micro Economy: Little change on the horizon for companies

Despite the fact that the largest Slovak bank, Slovenská sporiteľňa (SLSP) was sold at the end of 2000, there is little hope that the corporate sector will soon see a revival through loans from financial institutions.
In general, analysts hold out small optimism for a significant change in the micro economy for the year to come.
The main task for 2001 is, according to Ľudovít Odor, an analyst with CSOB bank, a furher cleansing of the corporate sector of those companies which are not able to compete on the foreign market.


Banks such as ČSOB, above, are unlikely to start lending more readily to companies this year.
photo: Vladimír Hák

Despite the fact that the largest Slovak bank, Slovenská sporiteľňa (SLSP) was sold at the end of 2000, there is little hope that the corporate sector will soon see a revival through loans from financial institutions.

In general, analysts hold out small optimism for a significant change in the micro economy for the year to come.

The main task for 2001 is, according to Ľudovít Odor, an analyst with CSOB bank, a furher cleansing of the corporate sector of those companies which are not able to compete on the foreign market.

"These are suffering companies which prevent the sector from growing," Odor said.

The relatively poor shape of legislation covering the corporate sector, is, experts say, still a cause for concern in 2001, and little progress can truly be made until that situation is remedied.

Although the draft of the Bankruptcy Law, strenghtening the position of the creditors in the process, was approved in summer last year, the most important part of the legislation, that dealing with the period after which bankruptcy becomes formal, will be effective as of February 2001.

According to Ján Tóth, an analyst with ING Barings the key to the macroeconomic success in the coming year will be the full implementation of bankruptcy legislation and its subsequent impact on the shape of the corporate sector as well as the legal framework in the country.

"In the year 2001, enforcement of law and improvement of the legal framework has to be improved in order to revive the corporate sector," Tóth said.

The analyst explained that complicated procedures in courts and poor enforcement of laws had discouraged some investors from coming to Slovakia.

"This then has a negative impact on corporate sector restructuring," Tóth said.

He continued saying that one of the most important tasks to fulfil this year is to speed up court proceedings through cutting back the red tape in judicial processes.

"More money should be invested into courts, especially to hiring extra staff which will help reduce unnecessary paper work, and buying extra computer equipment to modernise and speed-up the work of judges," Tóth said.

The coming year is also expected to be characterised by banks' continuing caution in providing loans, most probably only extending credit to old, reliable clients and to companies which provide suitable guarantees and have a proven financial track record.

"These are big and medium-sized companies. Although banks have enough money to issue more loans, only a little improvement is likely to be seen in their loan policy in 2001," the ING analyst said.

He added that the problems for small companies trying to obtain crucial financing would not disappear.

"In small companies the situation won't be particularly rosy because the new owners of privatised banks are not going to provide them with loans while they have insufficient guarantees to back up these loans".

The continuing credit crunch will force firms to take a different approach to development. According to Róbert Prega, an analyst with Tatra Banka, "more companies will be forced to merge with foreign entities to improve their economic performance and adopt new trends within their business sector".

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