IRB shareholders lower capital, ready bank for sale

A special shareholders meeting on September 7 at the troubled Investičná a Rozvojová Banka (IRB) voted to lower the bank's basic capital from 8.2 billion Slovak crowns to 504.6 million, the minimum amount required by the Banking Act. The money will be used to offset the bank's losses, which exceed nine billion crowns.
The IRB has been under a caretaker administration imposed by the National Bank of Slovakia (NBS) since December 1997 because of serious liquidity problems. Since the term of the caretaker administration expires at the end of 1999, the bank's shareholders are trying urgently to find a strategic investor before then.

A special shareholders meeting on September 7 at the troubled Investičná a Rozvojová Banka (IRB) voted to lower the bank's basic capital from 8.2 billion Slovak crowns to 504.6 million, the minimum amount required by the Banking Act. The money will be used to offset the bank's losses, which exceed nine billion crowns.

The IRB has been under a caretaker administration imposed by the National Bank of Slovakia (NBS) since December 1997 because of serious liquidity problems. Since the term of the caretaker administration expires at the end of 1999, the bank's shareholders are trying urgently to find a strategic investor before then.

At the beginning of August, an IRB shareholders' meeting approved a 5.7 billion crown increase in the bank's share assets to 8.7 billion crowns. The Finance Ministry subscribed the new shares, becoming the majority shareholder with a 66% stake. The share of insurer Slovenska Poistovna (SP) in IRB dropped to 23%.

Next steps

The next stage in IRB's preparation for investor entry will be a further clearing of losses with financial resources provided by the NBS and guaranteed by the Ministry of Finance. Reserve and premium funds amounting to 0.9 billion crowns will also be used to cover losses.

Subsequently, the shareholders are expected to decide on a strategic investor for the bank. Among the possible investors at this stage is the European Bank for Reconstruction and Development (EBRD) London. The EBRD, for its part, has confirmed that it will enter IRB, but has also suggested it will be only as a mediator, to sell a stake in IRB to another foreign strategic investor.

Restructuring of the IRB also includes transferring its soft loans for housing construction, inherited from communist times, and for nuclear energy projects like the Mochovce plant in central Slovakia, to Konsolidačná banka (KBB), a move which has already been approved by the NBS. IRB caretaker administrator Vladimír Hromý has said he believes the KBB transfer will dramatically increase the saleability of IRB.

However, Ján Tóth, senior economist at Dutch investment bank ING Barings, said that it was still an open question whether IRB had a positive value.

Because of the extremely low interests attached to many of IRB's loans, he said, the bank was losing money every day even though its credits were technically still performing loans.

Additional reporting by
Tom Nicholson

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