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Dopravna fourth bank collapse in 10 months

Only 24 hours after board members resigned in frustration over shareholder apathy towards a capital hike, the medium-sized bank Dopravná banka was put under a caretaker administration by the central bank.
In a July 1 statement, the National Bank of Slovakia (NBS) said that that developments at the bank had proved that it was unable to cope with increasing losses, and that it had also failed to create sufficient provisions to cover classified loans.
The bank's collapse comes only weeks after the government extended a controversial 2.5 billion Slovak crown ($56 million) loan to Devín banka to bail it out of its liquidity crisis, and has left the central bank scrambling to find an investor for the crumbling Dopravná.

Only 24 hours after board members resigned in frustration over shareholder apathy towards a capital hike, the medium-sized bank Dopravná banka was put under a caretaker administration by the central bank.

In a July 1 statement, the National Bank of Slovakia (NBS) said that that developments at the bank had proved that it was unable to cope with increasing losses, and that it had also failed to create sufficient provisions to cover classified loans.

The bank's collapse comes only weeks after the government extended a controversial 2.5 billion Slovak crown ($56 million) loan to Devín banka to bail it out of its liquidity crisis, and has left the central bank scrambling to find an investor for the crumbling Dopravná.

Dopravná is the fourth Slovak bank to fall in the last year, following AG Banka, Priemyselná banka and Slovenská kreditná banka.

"Investors will carry out the clean-up process of Dopravná banka," said NBS Governor Marián Jusko at a press conference on July 4. "We have no exact deadline for this, but we don't want to prolong the process of finding an investor. We require from any investor both transparency and money to raise capital," he added.

Dopravná began its search for 500 million crowns ($11 million) for a capital raise more than a year ago, and while the bank's problems were well known, it had been hoped that the entry of a strategic investor would lead to the capital raise and also provide the stability and experience needed to turn Dopravná's fortunes around. However, at a shareholder meeting June 30, board members were left disappointed after failure to reach a decision on an investor. Four companies had expressed interest in the bank - J&T Finance Group, Horizont o.c.p., the Drukos firm and the Alfa Finanz investment fund.

Central bank spokesman Ján Onda told The Slovak Spectator July 4 that the NBS had identified "potential investors," but refused to comment on who those investors were.

Analysts have expressed doubt that there would be much interest in Dopravná banka. "It's not a great bank and it will be really difficult to find an investor. It is not completely unrealistic, but unlikely," said Tomáš Kmeť, banking sector analyst at state-owned bank Slovenská sporiteľňa.

Only days before the central bank's action, analysts had warned that some financial houses were running into liquidity problems, raising further questions over the NBS's approach to banks known to be in trouble. "With this bank the NBS was a bit quicker than it has been before, but it still could have done more in the sector as a whole," Kmeť said.

However, the central bank has claimed that it is unable to do more to protect smaller banks like Dopravná banka under current banking sector legislation - a fact government officials have admitted.

Juraj Renčko, economic advisor to Finance Minister Brigita Schmögnerová, said that planned changes to procedures and legislation within the banking sector would "make it easier for the central bank to spot problems earlier and manage the sector better." He also defended the NBS's performance so far: "Bank supervision is a difficult and relatively new task [in Slovakia] and needs specific skills and procedures. The NBS has done a lot of work in this field but there is room for improvement."

Dopravná currently has 50,000 deposit accounts, primary deposits from non-banking entities of 2.4 billion crowns, and a loan portfolio of 1.6 billion crowns. Its largest shareholder is Slovenská sporiteľňa with 45% while state-controlled bank Investičná a rozvojová banka also has a 15% stake in Dopravná. At the end of 1999, Dopravná banka's total assets stood at 3.5 billion crowns with registered capital of 800 million crowns. It had a 546 million crown loss at the end of 1998.

Following the caretaker administration decision, concerns re-surfaced over the Deposit Protection Fund, set up to cover deposits in collapsed banks. Under the terms of the Fund, all banks pay levies to create a reserve pool for repaying a certain proportion of client deposit accounts at failed banks - a scheme that has drawn criticism from larger successful banks as being unfair.

However, the government has rejected the criticism. "Obviously in the medium-term the clean-up of Dopravná will be at the additional cost of the whole banking sector. But the situation of the Fund needs to be seen in the long-term. It is there for everyone to benefit from in the long-term," said Renčko.

Jusko warned that if there was no success in finding an investor for Dopravna banka then the NBS would be forced to consider options such as bankruptcy, something that would mean more Deposit Protection Fund pay-outs. The Fund, following payments made out after the collapse of AG Banka, is under serious pressure and would be unable to cover these payments. The NBS, Jusko said, would provide a loan to the Fund under these circumstances.

The banking sector's woes deepened with the news that the NBS's regular two-week report on the minimum reserves of banks on June 30 found that the banking sector had once again failed to meet the required reserve level, running at only 98.13% for the last two weeks of the month. But Jusko was adamant that Dopravná was the last bank that would be put under caretaker administration.

"Dopravná banka was the last of these cases," said Jusko.

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