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VÚB debts, losses threaten sale

According to a bank restructuring programme recently approved by the government, state-owned bank Všeobecná Úverová Banka (VÚB) needs to be restructured, recapitalised and sold. But as the real extent of problems at the beleaguered bank continues to surface, some analysts are wondering if VÚB can be made attractive enough to interest an investor.
In a dramatic year-on-year about face in financial results, VÚB reported a first half 1999 loss of 1.48 billion Slovak crowns ($35 million), compared to last year's first half declared profit of 73.57 million crowns. It was then discovered that shoddy book keeping had resulted in a miscalculation of four billion crowns last year, turning a two million crown full year 1998 profit into a 3.998 billion crown loss.


The Bratislava headquarters of state bank VÚB, where an accounting blunder turned a two million crown 1998 profit into a four billion loss.
photo: Ján Svrček

According to a bank restructuring programme recently approved by the government, state-owned bank Všeobecná Úverová Banka (VÚB) needs to be restructured, recapitalised and sold. But as the real extent of problems at the beleaguered bank continues to surface, some analysts are wondering if VÚB can be made attractive enough to interest an investor.

In a dramatic year-on-year about face in financial results, VÚB reported a first half 1999 loss of 1.48 billion Slovak crowns ($35 million), compared to last year's first half declared profit of 73.57 million crowns. It was then discovered that shoddy book keeping had resulted in a miscalculation of four billion crowns last year, turning a two million crown full year 1998 profit into a 3.998 billion crown loss.

The bank blamed the poor numbers on "the overall deterioration of the Slovak economy," and said state legislation created unfavourable conditions for banks in general. VÚB's future, both state and bank officials agree, lies with privatisation.

"The concern of both the bank's management and the Slovak government is to put the bank into private ownership," said VÚB spokesman Norbert Lazar. "The bank's present activities, i.e. decreasing operating costs, prepared restructuring of the bank's portfolio, and so on, are on course to reaching this aim."

In order to attract an investor, VÚB will have to reduce the share of classified loans, or loans that the borrower is not able to pay back, in its overall loan portfolio. According to Martin Kabát, a market analyst for brokerage house Slávia Capital, between 35 to 40% of VÚB's loan portfolio consists of classified loans. "VÚB is very much threatened by these classified loans," he said. "They should create some reserves to cover these [non-performing] loans, but the loans themselves are generating losses that have prohibited VÚB from giving new loans."

Lazar said that VÚB was, in fact, still giving loans, but that the bank had been forced to become more selective in its loan policy in order to avoid being saddled with an even deeper debt. "VÚB is still effecting loans," he said. "The loans, however, are only being granted to projects which show prospects of returns. In other words, as far as the loan business is concerned, the bank's policy can be considered rather conservative."

According to Lazar, VÚB should not be held completely responsible for the poor numbers the bank has recently posted. "The reason [for the decline] is mainly the overall deterioration of the Slovak economy, which is badly affecting the companies which were granted credits by our bank," he said. "Imperfect legislation also contributes to the overall inferior economic situation in Slovakia, in that it gives borrowers an advantage over lenders."

Kabát agreed that the bank needed to be privatised, but added that VÚB needed more than just a cash injection. "Of course they need to be privatised," he said. "But if you give bad loans, it's clear that you must also change the management."

Martin Barto, the director of the strategy division at state bank Slovenská Sporiteľňa (SLSP), said that another problem for VÚB was the dramatic division between their pre-audited year-end numbers and the final audited numbers.

According to Barto, VÚB initially declared a profit of two million crowns in 1998. After an audit conducted by Deloitte & Touche, VÚB was told they had to invest an additional four billion crowns from reserves to cover investments they had inaccurately calculated themselves. As a result, the two million crown profit turned into a loss of nearly four billion crowns.

According to the government's bank programme, approved on August 25, VÚB like other Slovak state banks would be allowed to 'carve out' a significant portion of their bad loans and transfer them to Konsolidačna Banka (KBB), a state-owned financial clearing house established in 1993 to absorb bad loans from state banks. However, Kabát questioned whether KBB had either the ability or the know-how to absorb VÚB's massive classified loans.

If the state and VÚB cannot revitalise the bank's loan portfolio, Kabát said, the eventual asking price for VÚB may be merely symbolic. "They are trying to turn it into a healthy-looking bank right now," Kabát said. "If they can't, maybe they'll have to sell for one Slovak crown, just so the investor will take on the burden."

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