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Any takers for IRB? Ministry places ad for troubled bank

Over two years after Investičná a rozvojová banka (IRB) became the first Slovak bank to collapse, the financial house recorded a distinction of an altogether more positive kind when it became the first state-owned bank privatisation project to be set in motion.
Following a June 21 advertisement placed by the government in the Financial Times newspaper to attract potential IRB buyers, the Finance Ministry and IRB sale advisor Bank Austria Creditanstalt said they expected a majority stake in the bank to be privatised in the second half of this year. Neither specified how much the sale might yield or what kind of investor might be interested.


IRB depositors flocked to the bank in 1997 after the central bank put IRB under a caretaker administration.
photo: TASR

Over two years after Investičná a rozvojová banka (IRB) became the first Slovak bank to collapse, the financial house recorded a distinction of an altogether more positive kind when it became the first state-owned bank privatisation project to be set in motion.

Following a June 21 advertisement placed by the government in the Financial Times newspaper to attract potential IRB buyers, the Finance Ministry and IRB sale advisor Bank Austria Creditanstalt said they expected a majority stake in the bank to be privatised in the second half of this year. Neither specified how much the sale might yield or what kind of investor might be interested.

But financial analysts were more forthcoming, saying they didn't expect significant interest in IRB because the bank was still struggling even six months after the central bank had lifted a caretaker administration imposed following the December 1997 crash. What was important, they said, was whether the government could keep its deadline for IRB - the answer to which would be crucially important for other state banks waiting in line for sale, as well as for bringing relief to the credit crunch the state houses are suffering.

The Finance Ministry has said it will create a short-list of potential buyers before July 17, who will then be given access to closer information on the bank and be asked to submit their bids.

Juraj Renčko, a special bank advisor to Finance Minister Brigita Schmögnerová, said that the government would try its hardest to attract the interest of big international banks in IRB despite the fact that it would be less attractive for investors than healthier state houses on the block such as VÚB and SLSP. "We definitely do not want to lead any big banks away from IRB," Renčko said.

However, according to Matthew Vogel, a senior economist on emerging markets with Merrill Lynch in London, the IRB would be lucky to attract the interest of even smaller European banks. "I think that IRB might be attractive to western European financial institutions which are not very large themselves, but which strategically want to build their balance sheet by expanding into central Europe in a cheap price," Vogel said.

As an example of such a customer, Vogel mentioned the Portuguese banks involved in Poland and the expansion of Italian and Spanish banks in eastern Europe. "There are financial institutions which are willing to look at banks which are considered to be risky, and I think that the Slovak government will find someone who will be willing to look at IRB at a certain price," Vogel said.

IRB found itself in financial troubles in December 1997 when, after being virtually unable to borrow anything on money markets to cover its obligations for three days, it came crawling to the central bank for help. The central bank then imposed a caretaker administration on the bank which was cancelled in December last year after the restructuring process it forced on IRB ended.

In 1999, gearing up for its bank privatisation programme, the government transferred 15.2 billion Slovak crowns ($344 million) in bad loans from IRB into Slovenská Konsolidačná and Konsolidačná banka Bratislava, state financial institutions established as repositories for low-interest and classified loans held by commercial banks.

The transfers brought the share of classified debt on IRB's total loan portfolio to 17%, considered acceptable to prospective buyers. Despite the bad loans, IRB made a 1999 profit of 12 million crowns ($271 000), a result which the bank's management said should improve further in 2000. "This year, we have come up with some new products [such as investing in state bonds] which will increase the bank's primary sources," said IRB president Adam Celušák.

But given that so high a proportion of IRB's primary sources - capital obtained from deposits - comes from the generosity of other state banks, analysts said, any potential investor was bound to consider buying IRB a risk.

In late 1999, a consortium formed of SLSP, VÚB and insurer Slovenská poisťovňa deposited 7.8 billion crowns in IRB for six months, a term that was recently extended until October this year. Kamil Katrenič, an analyst with Tatra Banka, explained that IRB was dependent on these deposits, and that if an investor bought into the bank the state consortium might well withdraw its money - leaving the investor to find replacement funds.

"Investors will have to realise that IRB is dependent on the money of the central bank and the consortium, which is not standard," Katrenič said.

"The bank's primary sources are also only a quarter of its assets, which are not profitable. The bank isn't very healthy, and this will undoubtedly influence the price the government is offered for IRB."

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