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Slovakia should get adjustment loan

The World Bank, an international financial group which is advising Slovakia on its crucial bank restructuring process, sent a mission to Bratislava from January 24 to February 4. The Slovak Spectator spoke with Roberto Rocha, a leading analyst with the World Bank Office for Central Europe in Budapest, about the results of the mission and bank privatisation on February 14.
The Slovak Spectator (TSS): What overall impression did the World Bank get of the restructuring process in Slovak banks?

The World Bank, an international financial group which is advising Slovakia on its crucial bank restructuring process, sent a mission to Bratislava from January 24 to February 4. The Slovak Spectator spoke with Roberto Rocha, a leading analyst with the World Bank Office for Central Europe in Budapest, about the results of the mission and bank privatisation on February 14.

The Slovak Spectator (TSS): What overall impression did the World Bank get of the restructuring process in Slovak banks?

Roberto Rocha (RR): I think that the programme is basically on track. I think that some very important steps have been completed. A very good financial advisor has been chosen for [two largest state banks] VÚB and SLSP - J.P. Morgan. And finally, [state bank] IRB has been put on a professional and transparent privatisation path, the same method used for the two large banks VÚB and SLSP. I think making the privatisation of IRB transparent was also a very important step.


TSS: Is the World Bank happy with the pace of restructuring?

RR: Well, it's not out of line with the successful experiences of other countries in the region. The bad loans have been carved out. The three banks will be relatively clean for privatisation. Privatisation has become more difficult in the region because the appetite for bank privatisation has declined.


TSS: According to the World Bank, what remains to be done in the Slovak bank privatisation process?

RR: They have to announce clearly the exact share in each bank that will be privatised. We think that they should privatise a majority stake in the three banks. If they try to privatise a minority stake in these banks, it's not going to work because no good potential investor will buy a bank without having control of it.


TSS: During your latest mission to Slovakia, you advised the Slovak government to hold discussions with the IMF (International Monetary Fund) on possibly receiving a stand-by loan. What exactly is a stand-by loan?

RR: The IMF gives several types of primary support to the country. A stand-by loan is just one of them. A country can choose a stand-by operation without drawing money. These operations are in the form of assistance that support maecroeconomic stability.

Slovakia has made enormous efforts to reduce its instability from previous years. I think markets are recognising it. So I think it's just a question of maintaining the current trend of [market] approval.


TSS: Yes, but Deputy Finance Minister Viliam Vaškovič said that the Finance Ministry didn't understand why the World Bank was advising Slovakia to take the IMF stand-by loan, when this loan is given usually to countries that have balance of payment difficulties, which Slovakia doesn't have. Under what conditions is a stand-by loan given to a country?

RR: Well, I think this is something for the Slovak government to negotiate with the IMF. A stand-by loan doesn't necessarily have to be financial support. It depends what the government and the IMF agree on.

I think that the World Bank's EFSAL [an adjustment loan which will be provided by the World Bank for bank privatisation - ed. note] loan requires a stable macroeconomic situation. And the EFSAL loan usally goes hand in hand with the IMF stand-by loan. However, there are exceptions. You know the only thing that the board of the World Bank insists on before it provides the EFSAL is that a country's macroeconomic situation be stable.


TSS: Does the World Bank believe that it can secure this macroeconomic stability with the IMF stand-by loan?

RR: In some cases the macroeconomic situation [in a candidate country] has been stable enough for the IMF just to write a letter to the World Bank Board informing them of the stability of the economic situation, which then exempted that country from the strict requirements of a stand-by loan. But in other cases it requires more than that. It requires more active partcipation of the Fund. It depends a lot on the situation.


TSS: Does this mean that the World Bank will wait for results of negotiations between the IMF and the Slovak government?

RR: Basically yes. I think that both the IMF and the government have a lot to discuss and I also think that dialogue between them will be very good. Apart from that I think that both the World Bank and the IMF recognise the tremendous effort that this government is making. There is enormous good-will toward Slovakia today.

Apart from these bilateral meetings between the IMF and the Slovak government, all three parties in the government, the IMF and the World Bank have to sit down and discuss the status of the macro economic situation. I think we will do this in the next few weeks.


TSS: Will this discussion touch both the EFSAL and stand-by loan?

RR: Yes. I think that preparations for the EFSAL loan are proceeding very well.


TSS: Will the World Bank approve the EFSAL loan for Slovakia?

RR: I think that we are working toward this scenario.


TSS: If so, how much would the bank lend Slovakia?

RR: It's still too early to say how much. I think it might be $200 million or more. But the issue of the size of the loan has not been discussed yet.

There are stages in preparing the EFSAL, and this is the very last stage. There is still some technical work to be done in preparing a good strategy for bad loans. And there are some additional legal reforms which have to be introduced.


TSS: After the bad loans are carved out from the three banks, what ratio of bad to healthy loans should remain in their portfolios?

RR: This is something for the financial advisor to indicate to the government. Have you seen what has happened to the Czech Republic recently? They were trying to sell Česká Spořitelna with its bad loans and they did not succeed because a good potential investor doesn't want a bank with bad loans. I think what we saw happen in the Czech Republic is an important lesson for Slovakia.

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