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Largest banks consider merger

The Finance Ministry has long said its plan for the nation's two largest state banks involved finding foreign investors who were both brave and wealthy enough to inject capital into the troubled institutions. In the last several weeks, however, a proposal by the bank's two presidents to merge their insitutions has sparked debate over the best way to address the sector's dire need for restructuring.
"Merger of the two banks is an interesting idea," said Martin Barto, a former senior analyst at Dutch investment bank ING Barings. Barto, who took office as general director of the strategy division at Slovenská sporiteľňa (SLSP) on February 1, said that a such a merger would result in a single strong Slovak state bank, which would then have better chance of survival even if Slovakia were to join the EU.


State bank SLSP (pictured above) is considering a merger with its equally troubled cousin, the VÚB.
photo: Jakub Malý

The Finance Ministry has long said its plan for the nation's two largest state banks involved finding foreign investors who were both brave and wealthy enough to inject capital into the troubled institutions. In the last several weeks, however, a proposal by the bank's two presidents to merge their insitutions has sparked debate over the best way to address the sector's dire need for restructuring.

"Merger of the two banks is an interesting idea," said Martin Barto, a former senior analyst at Dutch investment bank ING Barings. Barto, who took office as general director of the strategy division at Slovenská sporiteľňa (SLSP) on February 1, said that a such a merger would result in a single strong Slovak state bank, which would then have better chance of survival even if Slovakia were to join the EU.

But the merger idea is not without its critics. Ján Tóth, chief economist and strategist with the private Tatra Banka, said such a move would increase the possibility that the bank would be politically manipulated.

"I don't think a merger would be a good solution," Tóth said. "The result would be an oversized bank that could misuse its position on the market." Tóth added that he was sure the larger of the two banks, the Všeobecná Úverová Banka (VÚB) would find a strategic partner by the end of the year, as the Finance Ministry had intended.

According to a November 20 revision to the Law on Strategic Companies, VÚB was taken off the list of state-owned firms that could not be privatised before 2003, and was fingered for sale by the end of 1999. SLSP, which is still on the old list, cannot be sold before 2003.

The merger debated

VÚB spokesman Norbert Lazar said that no fusion between the two banks would happen in the near future, but said that the groundwork for an eventual merger had already been laid. "The chief representatives of both banks have recently agreed on steps that would allow a fusion in the future," he said.

A merger between SLSP and VÚB, Barto explained, would be a precautionary rather than a prescriptive move. "The merger would be a second option in case VÚB doesn't find a strong strategic partner," he said.

But Tatra Banka's Tóth warned the government to take decisive action rather than follow a 'wait and see' approach. "The best solution is to get rid of state banks altogether,"he said, explaining that state banks were vulnerable to political meddling in order, for example, to cover the state's fiscal deficit. "I would love to see both SLSP and VÚB privatised," he said.

Barto, for his part, said the merger would, in the long term, result in a banking entity which made more efficient use of its resources. "A bank two times as big would need only one management corps and proportionally fewer branch offices," he said.

While admitting that the merger would create some problems, such as integrating the IT systems the banks currently use or squaring the merger with the Anti-Monopoly Office, Barto said that the advantages of merger outweighed the disadvantages. "Everything is solvable," he said.

Restructuring process

Whichever decision the Finance Ministry takes - to merge the banks or sell them - nothing can happen until SLSP and VÚB restructure, which is mostly a question of getting rid of some of their bad debts.

Tóth was in favour of cutting all classified loans out of the portfolios of both banks and consolidating the bad debt in Konsolidačná Banka (KB), an special institution created in 1993 with the role of centralising non-performing loans in one location. "If we do this, the price of the SLSP and VÚB will increase," he said. "If we don't do it, we may have to sell them for a symbolic price, like one crown."

Barto said that consolidating these loans in KB was unrealistic, since in the state's current financial situation, there would not be enough money to create the necessary reserves against the centralised debt. Instead, Barto said, the state should speed up the bankruptcy process for debtor companies. "The government should ensure the prompt functioning of the courts and should guarantee the same rules for everybody," he said.

Total assets of SLSP as of June 30, 1998 represented 174.6 billion Sk. VÚB's assets in the same period was almost exactly the same. VÚB 1997 profits dropped down almost four times compared to 1995. While in 1995 it was 647.9 million Sk, in 1997 it was only 170.3 million Sk. Similar pattern applied to SLSP. Its 1995 profit was 670.4 million Sk, however, the 1997 result showed only 79.5 million Sk.

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