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Little hope for looser loans after bank sale

Representatives of Slovakia's second largest bank, Všeobecná úverová banka (VÚB), have stressed that following privatisation the bank's policies on loan provision would not change, dampening any hope which businesses may have had of a lessening of presently strict criteria after new management takes over.
With VÚB holding the lion's share of the lending market - 26.5% in total - news on March 21 that two foreign banks had proceeded to a second round of the bank's privatisation prompted speculation that VÚB might follow the possible lead of a rival bank and loosen up its conditions for obtaining credit. The move would be a welcome boon for corporations struggling to meet what they have repeatedly called the severe lending criteria at almost all banks in Slovakia.

Representatives of Slovakia's second largest bank, Všeobecná úverová banka (VÚB), have stressed that following privatisation the bank's policies on loan provision would not change, dampening any hope which businesses may have had of a lessening of presently strict criteria after new management takes over.

With VÚB holding the lion's share of the lending market - 26.5% in total - news on March 21 that two foreign banks had proceeded to a second round of the bank's privatisation prompted speculation that VÚB might follow the possible lead of a rival bank and loosen up its conditions for obtaining credit. The move would be a welcome boon for corporations struggling to meet what they have repeatedly called the severe lending criteria at almost all banks in Slovakia.

Slovenská sporiteľňa (SLSP), the country's largest bank and VÚB's main rival, following privatisation in December last year, hinted that its loan policy may soon change. Dominant in the savings deposit sector of retail banking, SLSP's new owners, Austria's Erste Bank, said last month that a review of lending policy was underway. Analysts said at the time that this was due largely to the new, foreign management's influence.

But VÚB spokesman Norbert Lazar explained that while the coming year would see a "moderate expansion of loans provided" by his bank, lending policy would remain cautious.

"With regard to our orientation post-privatisation, at present VÚB is the number one bank in the corporate loan market, and we want to preserve that position by expanding loans this year. Despite our aim of providing more loans this year, we will still only provide loans to quality projects with guaranteed return of finances provided," said Lazar.

He added: "However, we are going to try to strengthen our position on the deposit client market, where at the moment we are the second largest bank in Slovakia."

VÚB president Ladislav Vaškovič said that the bank "remains a universal bank, providing an across-the-board range of corporate and retail services".

Sector experts agreed that the bank may move towards the savings deposit sector of the market, trying to steal customers away from SLSP, as well as possible expansion into the underdeveloped e-banking market, but doubted any sudden change in lending policy.

"As soon as a foreign manager takes over, the first thing they will do is start restructuring the bank, maybe involving some lay-offs and the closing of certain departments within the bank. There will be a focus on getting the bank into good shape. Only after this will they start looking at loan conditions," said Miloš Božek, analyst at J & T Securities.

Banks have remained reluctant to lend to the corporate sector, preferring instead to put excess funds into state bonds and treasury bills, for fear of losing their money.

Under the previous government of Vladimír Mečiar, banks lent copious quantities of money to projects which current bank managers say would not be approved for loans today.

Between 1997 and 1998, while bank lending saw rapid growth, the total number of classified loans [non-performing credits which a bank is unlikely to see paid back] in the sector also rose 31 billion crowns, and their share of total loans in banks rose from 29% to 35%.

The loans, experts and current government members have said, were often granted on the basis of political ties or personal friendships between managers and state bank officials and those applying for credits, leading to what analysts characterised as a lack of transparency in the sector.

"Any change in the ownership of VÚB will add to loan policy transparency, which again is good," said Tomáš Kmeť, a sector analyst at SLSP.

After the change of government in 1998 and subsequent new management at state banks, interest rates on corporate loans stood at 26%. Although they have come down to an average of 13%, the interest payments are still too high for many smaller firms, stunting growth in the sector.

However, continuing near and actual bankruptcies in the sector, such as the high-profile case of the Slovenské lodenice komárno shipyards, banks say, has left them unwilling to relax their loan criteria.

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