VÚB has finally attracted some interest among buyers, much to the relief of the Finance Ministry.photo: Ján Svrček
A Finance Ministry announcement March 21 that Italy's Banca Commerciale Italiana and French Societe General had been short-listed for the second phase of privatisation of a 67% stake in Slovakia's second largest bank, Všeobecná úverová banka (VÚB), met with a collective sigh of relief from analysts who had feared the bank's sale would receive no interest.
"I'd heard rumours only a few days before that there was no one interested in VÚB, and that would have been very bad" said Miloš Božek, analyst at J & T Securities. "The fact that only two banks are interested could be viewed as a bit disappointing, because there won't be much competition [in bidding], but it is at least good that there is some interest."
Following what was widely regarded in the banking sector as a successful 18 billion crown ($380 million) sale of VÚB's main market rival and Slovakia's biggest bank, Slovenská sporiteľňa (SLSP), to Austria's Erste Bank in December last year, the government's task of privatising VÚB, analysts had warned, was going to be much harder.
Tomáš Kmeť, banking sector and research analyst at SLSP explained: "To sell VÚB was always going to be difficult, and it was clear from the start that the bank was not going to be interesting. That they [the government] got any interest in the stake is a plus. After the SLSP privatisation, Bank Austria [which lost in the tender] said that it wasn't interested in VÚB, and the other bank which bid, Unicredito, didn't show any interest. But there has obviously been some interest in VÚB, and that's a good thing. I mean, it wasn't as if anyone was expecting Deutsche Bank or Citibank to come in and buy it anyway."
The bank had only days before announced pre-tax profits of 3.4 billion crowns ($71 million) for 2000, prompting its president, Ladislav Vaškovič, to declare optimistically that "Všeobecná úverová banka is prepared for the entry of a strategic investor". The bank had in 1999 recorded a loss of just over 500 million crowns, and had fared even worse the year before.
Analysts said that the positive financial results were a boost for eventual privatisation, but added that the Finance Ministry's announcement on the two bidding banks had underscored a lack of interest in VÚB and Slovak banks in general. Another state bank up for grabs, Investičná a rozvojová banka (IRB) saw its privatisation launched in summer last year, and has attracted only one firm offer, from the Hungarian bank OTP.
"VÚB is not that interesting for an investor, and this [the interest of only two investors] shows that there is not much hunger for Slovak banks. SLSP was different in that it had a liability structure that was interesting for an investor, it has a large number of small depositors, whereas VÚB is geared more towards corporate lending, which is not as interesting for a potential buyer," said Božek.
The Finance Ministry's Bank Privatisation Unit declined to comment on the interest in the finance house, but maintained that the privatisation process was on schedule for a planned summer sale.
Government help
In announcing the latest profits, VÚB President Vaškovič said he was pleased with the figures, but emphasised the positive results had come only after a successful 100 billion crown state restructuring programme implemented in the banking sector between 1999 and 2000. He noted that the finance house had seen operating costs fall and its liquidity position improve markedly while its loan portfolio, a previous source of concern, had been cleaned up.
Classified loans at VÚB made up over 50% of its loan portfolio before the government scheme, but dropped to 18% at the end of 2000. The bank's capital adequacy ratio was 16.14% at the end of last year. However, during the period in 1999 when the central bank's set limit for the ratio was 8% [it has since been lowered by 2% - ed. note], VÚB's ratio had been only 9.38%.
However, J & T Securities' Božek cautioned against optimism regarding the profits. "This is a good result which will make things more attractive for investors [into the bank], but it came mainly because the previous losses had been a result of provisioning for bad loans, and the government took those bad loans out. I'm not sure if under normal circumstances [VÚB's] figures would be viewed in the same light," he said.
Following the launch of the privatisation of SLSP last summer, the government decided not to run a sale of VÚB concurrently for fear of compromising the value of stakes in both. However, since SLSP's sale the government has been hopeful of similar success with VÚB.
The bank's sale chances were boosted earlier this year when the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC), an arm of the World Bank, both took 12.5% stakes in the bank in what the Finance Ministry said was the first stage of the finance house's privatisation process.
The presence of the two banks in VÚB's management, experts believe, will reassure investors that the government is ensuring the best possible control of the bank prior to its sale.
