Just under 10 months since its acquisition of Slovakia's largest bank, Slovenská sporiteľňa (SLSP), Austria's Erste Bank is slowly turning the former state monolith into a commercial finance house, but fretting at unforeseen costs which are warping its business plan.
Bank sector restructuring, which since 1999 has included the sale of the largest Slovak state-owned banks to foreign investors, has brought a semblance of liquidity to the sector and secured foreign banking experience and knowhow that will be a positive influence on the Slovak bank and corporate market.
SLSP's transformation was lauded by Juraj Renčko, head of the bank privatisation unit at the Finance Ministry, as introducing "modern banking" not before seen in Slovakia. But observers have said the process may not be without its problems.
Staff layoffs are expected, while SLSP's market share - just over a quarter of the retail banking market - makes it a big contributor to the state's deposit protection fund, created to protect client deposits at banks that crash. With five Slovak banks having failed in the last two years, the fund - and SLSP's dues - have been taxed.
"We will [reduce the workforce]. The bank has to become more effective," said Regina Ovesny-Straka, CEO at sporiteľňa in an interview with The Slovak Spectator September 18.
First major sale
The privatisation of SLSP was the first sale of a state stake in the country's banks. In 1999 the current coalition announced plans to take more than 100 billion crowns ($2 billion) of bad loans out of three major state banks - SLSP, Všeobecná úverová banka (VUB) and Investičná a rozvojová banka (IRB). More than 33 billion crowns came out of SLSP's portfolio.
With its bad loans cut out, the bank was ready for privatisation. Smaller than the other two bidders for the 87.18% stake offered by the government - Bank Austria and Italian UniCredito - Erste outbid both, paying a suggested preliminary price of 425 million euros. The final price for Erste's stake is expected to be agreed in coming weeks, based on Erste's examination of the bank's finances.
In April this year Erste put together a transition team in charge of changes in the bank's retail operations, and of making improvements in control of banking and human resources, modelled largely on what had been carried out at Erste's other regional acquisition, the Czech house Česká spořitelna. Those changes are, so far, client-oriented, Ovesny-Straka explained.
"SLSP is still more product- than client-oriented. But we need to focus our behaviour on the client, on how to sell our products. Although the bank has a long tradition, this hasn't been done so far," she said. "This is the most important focus of our transformation."
Ovesny-Straka added that progress towards her goals had been satisfactory. "People who have done the transformation process there [in the Czech Republic] tell us that the process at SLSP has been faster," she said. However, one analyst called the speed of reform "average".
"The process has been long and nothing has really changed from the point of view of SLSP's customers. Technical equipment for on-line connections, handling of accounts, exchange of staff... The current level is quite weak. It will take them [Erste Bank] some time to get SLSP's services at levels comparable, for example, with the much more flexible and effective Tatra banka," said Marek Jakoby, an analyst with the Mesa 10 think tank in Bratislava.
Tatra banka has been Slovakia's most profitable bank for several years and has often been voted the best bank in Slovakia by financial publications.
SLSP, due to its relatively large network of 466 branches, has a 27% share on the Slovak deposit market, and saw deposits in June 2001 increase by 9% on a year-on-year basis. In comparison, Tatra banka, owned by Austrian banking group Raiffeisen, which has a much smaller share on the deposit market of over 11.5%, recorded a 50.7% increase in deposits.
Although Ovesny-Straka was optimistic about SLSP's transformation and its impact on the bank's performance, she wasn't pleased with the government's recent approval of an increase in the premiums paid by Slovak banks to the deposit protection fund (FOV) from the current 0.3% of primary deposits to 1%. The legislation is now in parliament.
"This endangers the creation of a healthy banking sector, and the European Union and International Monetary Fund will not like it. The government has invested a lot into bank sector restructuring, and this is going in the opposite direction," she said.
Ovesny-Straka explained that such an increase in payments to the fund would have a major impact on bank profits, and would subsequently affect the deposit interest rates they offered. "It might reduce our client potential. But it will not slow down the restructuring process," she said.
Of all Slovak banks, the rise would have its most significant impact on SLSP, because of its size and market share. In 2000, the bank paid 503 million crowns to the FOV, including a special 256 million crown premium levied after the collapse of Slovenská kreditná banka. SLSP has already paid 366 million crowns in premiums in the first half of 2001.
But the government sees no alternative. "Someone has to pay for it [failed banks], " said Renčko. "This is the best of all bad decisions, and there aren't any good ones."
24. Sep 2001 at 0:00 | Peter Barecz