International rating agency Standard&Poor's (S&P) assigned a single -"B"- pi (public information) rating to Istrobanka on November 18. A statement provided by S&P's London office said the rating reflected concerns over the bank's asset quality, its impaired performance and low capital levels.
The "pi" subscript indicates that S&P performed its analysis based on public information only, and highlights the restricted nature of the research done on Istrobanka compared with a standard, full ratings procedure.
S&P stresses that Istrobanka, holding about 3% of Slovak lending and deposit markets, benefits from its current ownership structure, with a large, local insurer - the state-controlled Slovenská Poisťovňa - holding a 72% stake. This alliance gives the bank access to the insurer's large network, customer base and liquidity.
In the near future, Slovenská Poisťovňa plans to sell a large portion of its stake to a strategic foreign investor. This improves Istrobanka's business prospects considerably, with regard to possible technology upgrades and expertise. Istrobanka's other shareholders are the municipality of Bratislava (18%), and Erste Bank der Osterreichischen Sparkassen (10%), based in Vienna.
S&P believes that Istrobanka's asset quality remains vulnerable to its uncertain operating environment. Its loan portfolio is subject to credit-risk concentrations, given the limited number of quality borrowers on the market. For example, during 1998 the financial situation of Istrobanka's two largest borrowers, which accounted for 4% of the bank's loan portfolio, suddenly deteriorated. As a result, Istrobanka's nonperforming loans more than doubled by year-end 1998, to 9%, prompting the bank to increase provisions to cover its classified loans fully with reserves.