Sale managers unfazed by VÚB loss

News of a near 10 billion crown loss for 1999 at Všeobecná úverová banka (VŮB) has left sector privatisation managers unfazed at what bank chiefs have called a "year of sacrifice" revealed behind the loss. The government's plans to privatise VÚB remain on course, according to the privatisation advisors J.P Morgan, with the loss hardly raising an eyebrow at the international firm.
"It's a large loss, but we're aware of the need to clean up things [at the bank]," said Johannes Kinsky, a member of the J.P. Morgan team looking after the sale of both VÚB and Slovenská sporiteľňa (SLSP). "The size of this loss won't affect the fundamental approach to privatisation of the bank, and we had no exact expectations on the loss," he added.


Not falling down just yet. VÚB announced a huge loss but managers of the sale of the bank and analysts have said that 1999 was a year of sacrifice for the bank to become more attractive to potential buyers.
Vladimír Hák

News of a near 10 billion crown loss for 1999 at Všeobecná úverová banka (VŮB) has left sector privatisation managers unfazed at what bank chiefs have called a "year of sacrifice" revealed behind the loss. The government's plans to privatise VÚB remain on course, according to the privatisation advisors J.P Morgan, with the loss hardly raising an eyebrow at the international firm.

"It's a large loss, but we're aware of the need to clean up things [at the bank]," said Johannes Kinsky, a member of the J.P. Morgan team looking after the sale of both VÚB and Slovenská sporiteľňa (SLSP). "The size of this loss won't affect the fundamental approach to privatisation of the bank, and we had no exact expectations on the loss," he added.

The government has slated the sale of both VÚB and IRB for next year, with the savings bank Slovenská sporiteľňa a short while later.

Last autumn the government transferred 45 billion crowns of classified loans to hospital banks Konsolidačná Banka and Slovenská Konsolidačná in an effort to make VÚB attractive to potential investors. The bank had been left with a legacy of non-performing loans which created a portfolio that analysts believe would have had many suitors for the financial institution turning away from a purchase.

The Finance Ministry also increased the volume of the bank's registered capital by 8.9 billion crowns to make sure its capital adequacy stayed above the required 8%. It stood at 9.18% after the move.

Figures released by the bank showing the 9.4 billion crown non-consolidated loss also revealed that in the first two months of this year VÚB had turned a 200 million crown profit. Bank chiefs said that the bulk of the loss, though, came on the back not of falling revenues or a growth in the cost of its client operations, but the necessity to create large volumes of provisions and reserves.

Last year the bank created additional provisions within its expenses amounting to 7.803 billion crowns. Their sum, along with reserves, reached 23.325 billion crowns, and VÚB had 4.8 billion crowns created to cover what it saw as its riskiest claims.

VÚB has found itself in a situation that both IRB and SLSP are having to address.

While SLSP is believed to be in better shape than VÚB or IRB and is not expected to have the kind of loss that VÚB has announced, it too has had to deal with the creation of large volumes of provisions.

"I think we have sacrificed this year to create enough provisions to cover bad assets, and VÚB is probably in the same situation. This should be understood," said SLSP's Martin Barto. "We sacrificed in order to clean the bank."

Analysts have been quick to point out that the losses are not a cause for concern and that with privatisation on the way, the kind of mop-up operations that have been required to put the banks' houses in order are likely to throw up figures such as VÚB's.

"We consider the losses as a legacy of the past," explained Kinsky. "We are not underestimating the financial situation at VÚB, nor is the government. The level of provisioning at the bank is adequate and there is no real surprise at the losses. The positive thing is that no-one at the bank is trying to hide anything. We didn't expect a 10 billion crown profit just suddenly."

Kinsky added that the privatisation of VÚB and IRB was on schedule and that both the banks' managements and the government were fully committed to seeing through the sales.

The losses at the state-owned financial monolith come at a time when the medium sized institutions in the Slovak banking sector are under renewed pressure following the recent collapse of Slovenská kreditná banka (SKB).

SKB's troubles were uncovered only a few months after similar-sized banks Priemyselná banka and AG Banka were put under caretaker administration. SKB's auditors Deloitte & Touche recommended the creation of additional provisions at the bank of 200 million crowns for 1998.

The central bank's caretaker administration is now beginning investigations into why the bank gave loans to certain clients while settling some other claims to companies connected to its major shareholders.

While SKB's licence has not yet been revoked and central bank governor Marián Jusko is still holding out hope that negoatiations can turn the situation around, the bank's plight has highlighted the fragility within the sector caused by not just financial mismanagement leading to poor loan portfolios, but possible wilful mismanagement, as in the case of SKB.

However, the silver lining in the banking sector is, according to Barto, just this caretaker administration.

"It is difficult to say if this situation with SKB is a growing trend, but it is helpful to put them [collapsing banks] under caretaker administrations because they get cleaned up," he said.

"It's some kind of a healing process."

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