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Bank sales inch closer but IRB still getting the cold shoulder

Despite a poor level of interest, government figures are insisting that the state can still close this year with the planned sale of one of three key banks - Investična a rozvojova banka (IRB).
Despite the latest news in mid-November showing that only two potential investors had expressed an interest in the bank, the Finance Ministry has rejected claims, at least for now, that it is close to calling off the sale of its 67% stake in the bank.
"All I can say for the moment is that the tender goes on. There are several interested parties with which we are in discussions to see if they will go forward with their interest," said Juraj Renčko, head of the Finance Ministry's bank privatisation department. He added, however, that it would still be a stretch for the government to meet its original target and sell the bank by the end of this year.


While the government has so far had success with its sale of SLSP, IRB (pictured above) has not fared so well, with officials saying the finance house is unlikely to be sold before the end of this year.
photo: Ján Svrček

Despite a poor level of interest, government figures are insisting that the state can still close this year with the planned sale of one of three key banks - Investična a rozvojova banka (IRB).

Despite the latest news in mid-November showing that only two potential investors had expressed an interest in the bank, the Finance Ministry has rejected claims, at least for now, that it is close to calling off the sale of its 67% stake in the bank.

"All I can say for the moment is that the tender goes on. There are several interested parties with which we are in discussions to see if they will go forward with their interest," said Juraj Renčko, head of the Finance Ministry's bank privatisation department. He added, however, that it would still be a stretch for the government to meet its original target and sell the bank by the end of this year.

"The possibility of selling the bank by the end of this year does exist, but really we'll have to see," he said.

The government began its preparation for bank privatisations more than a year ago with the announcement of a scheme for clearing up poor loan portfolios at its biggest banks. IRB, which had already been put under forced administration at the end of 1997, joined Slovakia's two other key finance houses, Všeobecná úverová banka (VÚB) and Slovenská sporiteľňa (SLSP) under the project. The 100 billion crown scheme saw bad loans taken out of the banks and transferred to Konsolidačná banka and Slovenská konsolidačná, two hospital banks.

While the move has been generally hailed as a success, IRB's privatisation has so far been a disappointment, drawing little interest and pushing an original late August deadline for bidders to enter a tender back to late October and now even further. Speculation is growing as to whether the state will abandon the tender for IRB and start all over again, despite IRB's having reported a pre-tax profit of 4.5 million crowns in the first nine months of 2000, its first positive result in almost three years. The move would give some of those who had been disappointed in their bidding for SLSP a second bite at the Slovak banking market cherry. However, analysts have said that this is unlikely to be successful.

"The kind of banks that are looking for SLSP are after market share, and IRB is in a very different position, it really doesn't have any market share. The interest in IRB will come only from people who want a banking licence, without that the bank really doesn't have anything," said Juraj Kotian, analyst at Slovenská sporiteľňa.

Senior figures at SLSP have, however, been pleased with the progress made on the sale of their own bank. Bouyed by recent figures showing a 694 million crown profit for the first three quarters of the year, they have said that the profit is a mark of the bank's current good health, and have predicted they will have a strong strategic investor by the end of the year.

Finance Minister Brigita Schmögnerová has set the deadline for final submission of bids as December 4, with an announcement of the winner and the closure of the privatisation within the first 10 days of January. So far, three European banking giants - Erste Bank (which holds a 52% stake in the Czech bank Česká spořitelna), Italy's UniCredito and Bank Austria - are in the final running for the bank.

The success with SLSP bodes well for VÚB, the country's second largest finance house, the privatisation of which was put back to next year to avoid competition with the tender for SLSP. Like sporiteľňa, it too recorded encouraging figures for the first nine months of the year, finishing the period with a profit of 319 million crowns. The two banks together had produced a 5.2 billion crown loss at the end of the same period of 1999.

Analysts believe that with the improved health of the sector this year - the sector as a whole recorded profits of 2.7 billion crowns over the first eight months of 2000 as compared with a 6.3 billion crown loss one year ago - and a potentially successful tender for SLSP, VÚB can attract the interest of some of the largest finance houses.

"The banks that may fail in [their bids] for sporiteľňa will probably go for VÚB - Bank Austria almost certainly will. It's the same thing, they'll be going after market share," said Kotian.

The bank has already boosted its chances with the sale of a 17% stake from the full 84% on offer to the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC). The move was seen as an important one in giving potential investors confidence in the bank's management, particularly in light of the widespread praise garnered by the EBRD during its involvement in bank privatisation in the Czech Republic.

However, not everything looks rosy for VÚB. In comparison with SLSP, the bank lacks the share of the savings market that its larger rival has, and is expected to command a lower price. Experts have said that after the bank is sold it is almost certain that cuts will be made from its 6,000-strong workforce.

"VÚB is not in as good a position as SLSP. It has too many people working there, and we would expect that the bank will have to face some lay-offs, maybe as much as one third of its workers," said Kotian.

However, some analysts doubted that the cuts would be quite so severe, and said that in fact the numbers of people working in VÚB may not drop dramatically at all.

"While we will probably see some lay-offs, the reason is that with industry consolidation banks are going to pursue more and more the lines of e-banking and newer services which will require people with knowledge of new technologies," said Martin Kabát, head of analyses at Slávia Capital brokerage house.

"This frictional unemployment happens whenever industries consolidate. It's a question of finding different people for different positions," he added.

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