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Corporate profits soar 540% over 1999

The government has brandished figures from the Slovak Statistics Office showing a huge growth in corporate profits in the third quarter of the year as a sign of the continuing success of its economic programme.

The government has brandished figures from the Slovak Statistics Office showing a huge growth in corporate profits in the third quarter of the year as a sign of the continuing success of its economic programme.

Figures released December 14 show that preliminary profit in the financial and non-financial sector in the third quarter of this year was 34 billion crowns ($680 million), 5.4 times higher than the profit for the comparative period of last year.

Profit in the non-financial (company) sector climbed 80.4% to 27.9 billion crowns while the financial (banking and insurance) sector reported a profit of 6.1 billion crowns after ending Q3 1999 9.2 billion crowns in the red.

Profit figures for the whole Q1-Q3 period were equally encouraging. The profits of financial and non-financial corporate entities increased 67.4% to 98.3 billion crowns ($1.96 billion) in the period, with the financial sector seeing profits soar seven-fold to 17.8 billion crowns.

Following a successful restructuring programme to heal the loan protfolios of state banks, the banking sector as a whole managed to improve its financial performance to record a 15.8 billion crown profit, having finished 1999 in the red.

"The main reason for the profits is really our macroeconomic stabilisation and falling interest rates. The average interest rate on a newly-issued loan when the government came to power [in October 1998] was 28%. Now it's around 12%," said Vladimír Tvaroška, economic advisor to Deputy Prime Minister for Economy Ivan Mikloš.

Statistics Office Chairman Peter Mach agreed the profit growth had come on the back of falling interest rates, but added that many companies had successfully implemented strategies to turn round previous losses.

Experts believe that the increased profits are not just a sign of a revival in the corporate sector, but can in themselves be reinvested to continue growth.

And with banks recording profits again, they may be more willing to lend to small and medium-sized companies, often seen as the engine of a growing economy.

"Banks will now be able to lend, but they may only want to provide loans to the best companies. They are still cautious about lending. But even if they just go to these companies this alone will be good for the [corporate] sector," said Miroslav Kňažko of economic think-tank MESA 10.

Many companies with profits may elect to reinvest their money into their own expansion and hence that of the corporate sector.

"Some companies certainly have room for expansion, and they will probably feel that they can use their profits for that same expansion," said Ivan Chodák, analyst at CAIB in Bratislava.

Importantly for some experts, manufacturing companies accounted for the biggest profit rises in the non-financial sector, seeing their profit growing 154% to 25.1 billion crowns.

"Manufacturing profit increases mean that the likes of Volkswagen are making more [profits], which is usually export driven and a sign of a wider healthy state of exports in Slovakia," added CAIB's Chodák.

Figures showing profits from the production and distribution of power, natural gas, and water falling 33.3% to 8.5 billion crowns were also dismissed by Tvaroška as being due largely to external factors.

"Those falls are mainly due to the [worsening] foreign exchange rate [the dollar currently exchanges for almost 50 crowns while at the beginning of the year would buy 41 crowns - ed.note] and the rising world prices of oil," explained Tvaroška.

"And with regulated price rises [see story on page 1] those profits should rise again next year," he added.

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