The Bratislava headquarters of the VÚB state bank, which has piled new politically-motivated bad loans on old debt.
photo: Vladimír Hák - Profit
According to a government statement issued on May 20, the privatisation project aims to cut the long-term insolvency of banks and the high debt rate of companies, and to halt the long-term deterioration of the banking sector. Negotiations are underway to secure financing for the project from the World Bank.
The government has also announced that an international tender will be announced for an investment advisor who will prepare the privatisation of Investičná a Rozvojová Banka (IRB) in October 1999, Slovenská Sporiteľňa (SLSP) in August 2000 and Banka Slovakia and Všeobecná Úverová Banka (VÚB) in December 2000. The government will seek to maintain a majority share only in SLSP.
"The privatisation of banks is a result of a natural process," said Vladimír Zlacký, an advisor to Deputy Prime Minister for Economy Ivan Mikloš. "We could ask why they [the banks] still belong to the state," he said. According to Zlacký, the proper role of the banks is the effective allocation of sources based on commercial criteria, a role "which can't be guaranteed if they are not privately owned."
"The government's decision concerning privatisation of banks is a step forward," agreed Ján Tóth, a senior analyst with ING Barings. Tóth added he hoped the government would reconsider its decision not to sell its majority share in SLSP.
One of the biggest challenges facing the vendor of these institutions is what to do with the massive classified loans the state banks have amassed, both from inherited communist-era debt and more recent politically-motivated loans to state companies.
Despite the government's official statement that the three largest state banks had only 15.4 billion crowns in uncovered losses as of September 1998, numbers quoted by industry insiders tell a different story. VÚB First Vice President Ladislav Szikhardt, quoted in the business weekly Trend, said that VÚB had over 50 billion Slovak crowns ($1.2 billion) in classified loans.
Tomáš Kmeť, an analyst at ING Barings investment bank, calculated that VÚB actually had 59 billion crowns in uncovered losses, while IRB needed 11 billion crowns and SLSP 26 billion to function properly. "The World Bank has advised the government to issue 10-year bonds of 96 billion crowns into their [the three big state banks'] portfolios within 2 years, meaning that fiscal expenditures will amount to 10 billion crowns a year," he noted.
According to Tóth, the government bonds would be included in the banks' portfolios, after which their bad debts might be transferred to Konsolidačná Banka, a state financial institution established in 1991 as a repository for low interest loans held by commercial banks. "The cost of this operation will be indirectly financed by tax payers," he said, "because the National Bank will obviously have its fingers in it."
The government plan itself calls for an unspecified portion of the bad debts of state banks to be transferred to Konsolidačna Banka. Some of the loans will be carried by the banks themselves, while the costs of the entire operation will be shared by the National Bank of Slovakia, the banks involved and the state.
"No investor would be willing to pay even one crown for the banks until they [the bad loans] are reclassified," said Zlacký, "because their uncovered losses are very high." Zlacký said he was unsure whether the problematic debts would be transferred to Konsolidačná Banka. "Another possibility is to secure the bad debts and sell them on the market, similarly as it was done for example in Hungary," he said.
Officials at the state banks are being cagey for the moment about their concrete plans for luring investors. "We can only welcome this step [privatisation of banks], and we consider it as the only way to increase their basic capital, which is relatively low," said Martin Barto, head of the strategy department at SLSP.
"Both the process of privatisation and the reclassification of banks should be established as soon as possible. But until this happens, there is no reason to comment on either process," said Norbert Lazar, a VÚB spokesman.