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Big profits augur well for bank sales

Announcements of encouraging profit figures for Slovakia's two largest banks, Všeobecná úverová banka (VÚB) and Slovenska sporiteľňa (SLSP) November 3 have been taken by analysts and the banks themselves as a sign that the government's bank revitalisation programme has been successful, and that the sector is returning to health.
VÚB recorded a gross profit of almost 319 million crowns ($6.1 million) for the first nine months of the year, rising from a 2.98 billion crown ($59 million) loss in the same period last year with a year-on-year profit increase from financial operations and a reduction of general operating costs.

Announcements of encouraging profit figures for Slovakia's two largest banks, Všeobecná úverová banka (VÚB) and Slovenska sporiteľňa (SLSP) November 3 have been taken by analysts and the banks themselves as a sign that the government's bank revitalisation programme has been successful, and that the sector is returning to health.

VÚB recorded a gross profit of almost 319 million crowns ($6.1 million) for the first nine months of the year, rising from a 2.98 billion crown ($59 million) loss in the same period last year with a year-on-year profit increase from financial operations and a reduction of general operating costs.

SLSP, Slovakia's largest bank, ended the same period this year with a preliminary profit of 694.3 million crowns ($13.8 million), with profit from main financial operations growing 1.81 billion crowns ($36 million) year-on-year to 4.62 billion crowns ($92 million).

"These results show that we are fully prepared for privatisation and in good shape. I think we can say that the government's restructuring programme [for SLSP bank] has been very good for us," said SLSP spokeswoman Jana Ďurícová.

Norbert Lazar, spokesman for VÚB, added: "The results show that VÚB is a successful and healthy bank ready for privatisation. They are also a measure of the success of the government's revitalisation programme."

Both banks are slated for privatisation within the next nine months to one year. Of the two, SLSP is expected to attract the highest price, with interest in the bank already expressed by Austria's Erste Bank and Bank Austria.

A 100 billion crown ($2 billion) government clean-up of Slovakia's three largest banks, SLSP, VÚB and Investičná a rozvojová banka (IRB) was recently completed, the process involving transfers of large volumes of classified and non-performing loans in an attempt to make the finance houses as attractive as possible to investors.

Analysts have said that the latest results have confirmed the success of the revitalisation programme.

"Principally, this whole clean-up operation has been a success. As soon as the state tranferred the [bad] loans [to hospital banks Slovenská konsolidačná and Konsolidačná banka - ed. note] they found themselves up in the banks, in a more advantageous position than before," said Martin Kabát, head of analyses at Slávia Capital brokerage house in Bratislava.

"Of course, the [profit] margins are much higher now and this will make the banks all the more attractive for potential buyers," he added.

The government has offered up for sale an 87% share in SLSP, a 70% share in IRB and an 84% share in VÚB. A 17% stake in VÚB is to go to the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation. An announcement from the Finance Ministry November 7 said that two new investors had expressed interest in the bank, giving a late boost to what had previously been a lacklustre tender attracting only one bidder.

However, despite the apparent success of the programme, the government will be left with the matter of what to do with the bad loans sitting in Konsolidačná banka and Slovenská konsolidačná.

"It's a lot of money, and there is only a chance that about 20% or 30% of it will come back," said Kabát. "Maybe some loans are asset-backed, but really, how much is likely to come back to the state is unclear. The government will either have to produce a new law allowing for some of these loans to be allowed to stay like this, or they will have to be written off and the government will have to find 100 billion crowns in cash."

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