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Mixed results as Slovak bank privatisation continues

Efforts to privatise two banks still in state hands saw mixed results July 20 as the sale of a 60% stake in Slovakia's smallest bank faltered for a second time, while press reports suggested a successful sell-off of the larger Investičná a rozvojová banka (IRB) was drawing closer.
The central bank announced that it had refused three interested parties - J&T Finance Group, Slávia Capital and 1. Paroplavebna brokerage company - the right to carry out an audit of Banka Slovakia. It said that none of the candidates had experience working in the Slovak banking sector, and cast doubt on the recent financial performance and structure of J&T Group in particular.
A previous tender for the sale of a 60% share in the bank failed in February when an interested consortium pulled out of talks after failing to agree terms.


Hungarian press have said that a sale of IRB bank to Hungarian OTP bank has moved closer.
photo: Vladimír Hák


"The arguments of the central bank are based on untruths, which, in our opinion, arose from absolutely unprofessional judgement of our basic offer."

J&T Group President Jozef Tkáč


Efforts to privatise two banks still in state hands saw mixed results July 20 as the sale of a 60% stake in Slovakia's smallest bank faltered for a second time, while press reports suggested a successful sell-off of the larger Investičná a rozvojová banka (IRB) was drawing closer.

The central bank announced that it had refused three interested parties - J&T Finance Group, Slávia Capital and 1. Paroplavebna brokerage company - the right to carry out an audit of Banka Slovakia. It said that none of the candidates had experience working in the Slovak banking sector, and cast doubt on the recent financial performance and structure of J&T Group in particular.

A previous tender for the sale of a 60% share in the bank failed in February when an interested consortium pulled out of talks after failing to agree terms.

However, the same day, press reports from Hungary suggested that Hungarian bank OTP would be submitting a new bid for IRB, Slovakia's sixth-largest bank, with a price offer 20-30% higher than a bid already rejected last month.

Privatisation of the banking sector has been seen by the EU, as well as multilateral lending institutions such as the World Bank and the IMF, as crucial to the health of the Slovak economy. They have urged the current government to sell off banks as quickly as possible.

Dogged with bad loans and seen as one of the weakest sectors of the economy, the banking sector has been largely cleaned up over the last 18 months through a government transfer of 100 billion crowns of bad loans to hospital banks. However, while it has successfully sold off its two largest banks - Slovenská sporiteľňa and Všeobecná úverová banka - the state has found it hard to sell both IRB and Banka Slovakia.

After putting IRB under forced administration in late 1997 when the bank ran into liquidity problems, the state had to transfer nearly six million crowns in bad debt from IRB prior to its planned privatisation.

While it has recently recorded more promising financial results - IRB management announced a 32.8 million crown profit for the first half of this year - it has just a 3% share on the retail banking market, and only OTP has put in a bid in the last 12 months.

Banka Slovakia has fared little better, and prior to this latest failure, a consortium involving Czech insurance company Česká Pojišťovna and Slovak firm Hanco pulled out of negotiations for the 60% share on offer.

Hanco representatives said at the time that their firm was interested in purchasing only the bank's assets and liabilities, and wanted a 100% share in the bank.

After the news of the progress on the two banks' sales was released, some in the sector said that the fate of Banka Slovakia was irrelevant to the future of the sector, but that the apparent near success of the IRB sale was encouraging.

"It looks as if the IRB privatisation is going to be very soon. What the banking sector and the economy needs is to get banks privatised. The government doesn't want to have any banks in its hands," said Róbert Prega, an analyst at private bank Tatra banka.

Slovak state representatives, however, refused to comment on the reports of OTP's new bid, other than to confirm that negotiations with the Hungarian bank are continuing.

"Talks with OTP are going ahead, but it's not the right time to comment on anything," said Juraj Renčko, head of the Finance Ministry's Bank Privatisation Unit.

OTP officials were unavailable for comment.

The FNM state privatisation agency, which is overseeing the sale of Banka Slovakia, said it remains confident it can sell the finance house. It is expected soon to make a decision on whether to prolong the current tender, launched one month ago, or cancel it and announce a new one.

But J&T Finance Group attacked the central bank's decision to ban pre-sale audits by the three interested parties, calling it "a manipulation" of the privatisation of the bank. President of the group Jozef Tkáč said: "The arguments of the central bank are based on untruths, which, in our opinion, arose from absolutely unprofessional judgement [by the NBS] of our basic offer.

"In personal meetings between our and NBS representatives it was said that we had completely fulfilled all legal conditions for capital entry to Banka Slovakia. We therefore consider the release of information to the media on the reasons behind the decision a manipulation, with the aim of turning back the privatisation of Banka Slovakia."

He stated, however, that J&T remained interested in acquiring Banka Slovakia.

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