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Bank restructuring plan approved

The Slovak cabinet finally gave the green light for restructuring selected state banks and companies at its meeting on August 25. Finance Minister Brigita Schmögnerová said that much of the 80-90 billion Slovak crown ($1.9-$2.15 billion) cost of healing the banks would be met by a state bond issue in Slovak crowns with a minimum 10-year term.
"Room for such a bond issue exists and depends also on the evaluation that foreign institutions make of our restructuring plans," agreed Deputy Prime Minister Ivan Mikloš after the cabinet session.
The cabinet move drew approval from economic analysts. "It was high time they passed this," said Ján Tóth, a senior analyst at ING Barings. "They are moving in the right direction, following the advice of the World Bank."


Finance Minister Brigita Schmögnerová (left) was in harmony with Deputy Prime Minister for Economy Ivan Mikloš (right, at rear) on the best means to improving the health of Slovakia's state banks.
photo: TASR

The Slovak cabinet finally gave the green light for restructuring selected state banks and companies at its meeting on August 25. Finance Minister Brigita Schmögnerová said that much of the 80-90 billion Slovak crown ($1.9-$2.15 billion) cost of healing the banks would be met by a state bond issue in Slovak crowns with a minimum 10-year term.

"Room for such a bond issue exists and depends also on the evaluation that foreign institutions make of our restructuring plans," agreed Deputy Prime Minister Ivan Mikloš after the cabinet session.

The cabinet move drew approval from economic analysts. "It was high time they passed this," said Ján Tóth, a senior analyst at ING Barings. "They are moving in the right direction, following the advice of the World Bank."

According to the government plan, before any bank can be privatised, it must have achieved an 8% capital adequacy ratio, while its classified loans cannot exceed 20% of its credit portfolio.

Before being privatised, the banks also be re-capitalized. A portion of the classified loans of Všeobecná Úverová Banka (VÚB) and Slovenská Sporiteľňa (SLSP) will be shifted in the first stage to Konsolidačná Banka (Consolidation Bank), and in the second stage to the Agency for the Administration of Classified Loans.

Tóth said that he was perplexed by the government's plan to keep a majority in SLSP. The government, particularly the former communist SDĽ party, had said this was necessary to protect the over 50% of Slovak client deposits at the bank.

"I don't understand the purpose of the state owning a bank other than to give economic power to politicians," he said, adding that the SLSP client deposits were already safely insured. "I also don't understand a leftist party [the SDĽ] voting to put a higher cost burden on taxpayers," he continued, reasoning that selling a minority stake in SLSP would not bring in as much money to the state budget as a majority stake would.

The revitalisation process will be paid for not only through a bond issue but also from the resources of the National Bank of Slovakia (NBS), sale of the banks in question, and, eventually, by a loan from the World Bank. Mikloš said on August 25 that the European Bank for Reconstruction and Development had also expressed interest in participating.

The ministry also wants to draw on the resources of the state banks' current shareholders, who Schmögnerová feels are partly responsible for the state the banks are now in.

Schmögnerová said the first round of the revitalisation process - the search for foreign partners - would begin "in the coming months" and should be complete during the year 2000. The second phase - involving legislative and institutional change - would take several years.

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