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OTP makes late bid for neglected IRB bank

The privatisation saga of state bank Investičná a rozvojová banka (IRB), which has failed to attract any concrete interest since it went on offer in summer last year, saw an unexpected twist March 13 as it was announced that the largest Hungarian bank, OTP, was bidding for the stake.
According to the Finance Ministry, OTP is the only investor interested in acquiring the 69.9% stake offered by the Finance Ministry and the National Property Fund privatisation agency, and will carry out due diligence on the finance house in the second half of March.
"The [potential] Hungarian investor is then expected to come up with an offer, and the Finance Ministry will make the decision," said Jozef Mach, spokesman for the Finance Ministry. According to Hungarian press, OTP will offer between three and seven billion forints ($10 million and $23.4 million) for the IRB stake. OTP officials were unavailable for comment on their potential acquisition of the Slovak institution.


IRB, which was put under forced administration in 1997, has attracted little interest since going on the block in 2000.
photo. TASR

The privatisation saga of state bank Investičná a rozvojová banka (IRB), which has failed to attract any concrete interest since it went on offer in summer last year, saw an unexpected twist March 13 as it was announced that the largest Hungarian bank, OTP, was bidding for the stake.

According to the Finance Ministry, OTP is the only investor interested in acquiring the 69.9% stake offered by the Finance Ministry and the National Property Fund privatisation agency, and will carry out due diligence on the finance house in the second half of March.

"The [potential] Hungarian investor is then expected to come up with an offer, and the Finance Ministry will make the decision," said Jozef Mach, spokesman for the Finance Ministry. According to Hungarian press, OTP will offer between three and seven billion forints ($10 million and $23.4 million) for the IRB stake. OTP officials were unavailable for comment on their potential acquisition of the Slovak institution.

Purchase welcomed

OTP's interest brought positive reactions from the government. Describing OTP as a high-quality investor who would help to stabilise and grow the bank, Vladimír Tvaroška, an advisor to Deputy Prime Minister for Economy Ivan Mikloš, said: "It would be good to privatise IRB, and find a solid and serious owner, such as OTP. The Hungarian bank would be good for IRB, and if it offers suitable conditions regarding price, it will get IRB." He added that the IRB sale had dragged on and should be closed as soon as possible.

Dušan Meszároš, analyst with Commerzbank Capital Markets in Prague, said that as OTP was one of the best-performing banks in central Europe, its buy-out of IRB would be positive for the government. "Interest in IRB has been small so far, and the government will be happy if any interest is expressed," Meszároš said.

So far, IRB has attracted the attention of only Austrian bank BAWAG, which withdrew its offer last year after making acquisitions on its domestic market. At the end of last year, Slovak media reported that the Hongkong-based Regent group was also interested. However, the group has never confirmed its interest in the bank.

OTP, Hungary's largest bank, has a basic capital of 28 billion Hungarian forints (4.48 billion crowns), and assets of 1,767 billion forints (500 billion crowns). IRB's assets in August 2000 were 28.4 billion crowns, while basic capital was 8.7 billion crowns. OTP was partially privatised in 1992, and currently has 89.72% of shares available on the market. In 1999, its profits exceeded 33 billion forints (5.28 billion crowns). The most profitable Slovak bank, Tatra Banka, made a profit of over 1.5 billion crowns in the same year, and IRB recorded a profit of 12.3 million crowns.

OTP had previously expressed an interest in investing in the Slovak or Croat markets as part of an expansion drive; if it is chosen as a strategic partner for IRB, it will be its first acquisition in its more than 50 year history.

However, as Jioí Stanik, an analyst with Wood & Co in Prague suggested, OTP's decision to hone in on the Slovak market came after its withdrawal from bidding for the last big commercial bank to be privatised in Hungary - Posta Banka - at the beginning of March.

He explained that the bank had probably considered the possibility of failure in its bid for the Hungarian bank, and had chosen the alternative of bidding for the IRB stake instead.

"They were ready to buy into that [Posta] bank, but failed to reach a decision with the Hungarian government on the price for the deal. If they had got that bank, they wouldn't have decided to bid for IRB, as they would have had to include Posta Banka in their portfolio, and wouldn't have expanded on foreign markets," Stanik said.

Hungarian analysts said that OTP was looking for cheaper ways of expanding, and that IRB fitted the bill. "For OTP, it is a good time to arrive on the Slovak market, in that it hasn't yet been consolidated," said Loránd Horváth, an analyst with Wood & Co. in Budapest.

"It would be hard for them to get to the Czech or Polish markets. This is a chance for them to get something close to Hungary and for a cheap price, given IRB's past," Horváth said.

IRB was put under forced administration in December 1997 after finding itself virtually unable to borrow anything on money markets to cover obligations, and being forced to come to the central bank for help. The bank made a loss of 4 billion crowns and had negative equity of 6 billion crowns in 1998.

However, the bank has since managed to turn itslef into a marginally healthy bank, and came out of forced administration last year.

But despite this, the bank is still considered by many sector experts as one which would not generally attract interest; the experts have said that its only attractive feature is that it has a banking licence in Slovakia for offer.

The banking sector itself in Slovakia is, though, more healthy and the privatisations of both Slovenská sporiteľňa and Všeobecná úverová have gone well so far.

Following a 100 billion crown bank restructuring programme, SLSP was sold at the end of last year and VÚB has already seen the European Bank for Reconstruction and Development take a stake.

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