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Eximbanka under fire for extinguishing exports

A government-created bank for the support of exports, Eximbanka, marked its first birthday on July 1, but opposition and independent experts say that if it were not for a nice building and fat salaries, the bank's officials would not have much to boast about. The critics point to the lack of activity and bad concepts as the most apparent faults, of what was supposed to be the principal engine for propelling the Slovak exports into high gear.Some go as far as doubting the bank's raison d'étre. "The government support of exports actually decreased by the creation of Eximbanka," said Peter Mihók, Chairman of the Slovak Chamber of Commerce and Industry, in an interview for an independent SITA news agency. "When Eximbanka was founded, the government abolished previously existing means of export assistance, [such as export bills of exchange] because it assumed the bank would create and coordinate the whole system of export support. However, nothing of such happened."

A government-created bank for the support of exports, Eximbanka, marked its first birthday on July 1, but opposition and independent experts say that if it were not for a nice building and fat salaries, the bank's officials would not have much to boast about. The critics point to the lack of activity and bad concepts as the most apparent faults, of what was supposed to be the principal engine for propelling the Slovak exports into high gear.Some go as far as doubting the bank's raison d'étre. "The government support of exports actually decreased by the creation of Eximbanka," said Peter Mihók, Chairman of the Slovak Chamber of Commerce and Industry, in an interview for an independent SITA news agency. "When Eximbanka was founded, the government abolished previously existing means of export assistance, [such as export bills of exchange] because it assumed the bank would create and coordinate the whole system of export support. However, nothing of such happened."

Management's credentials questioned

Peter Magvaši, former economics minister and opposition SDĽ deputy, charged the bank with failing in its task due to the human factor. "In my opinion, Eximbanka's management is much weaker than the management of any other Slovak bank and that is the reason for its lack of activity," he said.

Before he was appointed Governor of Eximbanka in July 1997, František Orolín had been the vice-president of the ill-fated IRB which went under the following December. But Orolín maintained that Eximbanka under his leadership, had done quite a lot for an institution who had not yet reached it's first birthday yet. "I say that we have nothing to be ashamed of," he said. "In the first stage, we managed to build a functioning bank in a very short period of time."

But Magvaši pointed out it was the time it takes for a bank to get established that had been the main reason for his doubts. "That is why I did not think it was worth it to create Eximbanka in the first place," he said. "It takes 5 to 8 years for a new bank to get integrated into the world markets, to create links and connections in the financial world. Using an existing bank to do the same thing would have been a much better choice."

Magvaši explained that when he was the minister back in 1994, the government picked Všeobecná Úverová Banka (VÚB) for this purpose. After the government changed, the plan was abandoned. Instead, the idea of a separate government institution was conceived and promoted by Peter Staněk, the State Secretary at the Ministry of Finance and the former economic advisor of Prime Minister Vladimír Mečiar. However, when approached by The Slovak Spectator, Staněk refused to unleash his own criticism of the bank on the record.

Unimpressive figures

Justifying Eximbanka's existence, Orolín quoted figures on its performance. In its first year, he said, the bank used 1 billion Sk ($30 million) to support exports directly, mostly by loans, and concluded that insurance on exports was worth more than 2.3 billion.

Those figures did not impress his critics at all. Schmögnerová pointed out that the Company for Insurance of Export Loans, which Eximbanka took under its wings shortly after being created, used to insure similar amounts.

Schmögnerová continued that the real problem with Eximbanka was that it had been wrongly conceived. "Eximbanka was created primarily as a lending institution with the government hoping its assets would soon reach 70 billion Sk," said Schmögnerová, adding that they did not grow to more than a fraction of the expected size. "Other export and import banks, in Japan or USA, place emphasis on insuring loans provided by commercial banks against political and commercial risks. Only in cases where loans are impossible to get otherwise, would they consider lending," she said.

Breaking the vicious cycle

There are more signs that the bank is not pursuing its line of business vigorously. The latest available balance sheet of Eximbanka from last December showed, that almost 61% of the bank's total assets are not used for the designed purpose. Out of 4.6 billion Sk assets, 2.8 billion were sitting in term deposits in other banks, collecting interest between 18-20% p.a. This explains why the bank was able to make a profit of 50 million Sk in its first year of operation.

By endowing Eximbanka its start-up capital of about 2.4 billion Sk and funding the Company for Insurance of Export Loans, which provided the rest of the bank's capital, the government completed a perfect vicious circle: Eximbanka stores government funds with other banks for high interest rates; the banks then buy government securities for even higher interest rates.

Magvaši asserted that this cycle would be broken after the elections - if the current opposition forms a new government, and the SDĽ has a say in it. "Eximbanka should fuse with another bank that would take over its duties," he said, adding that VÚB would still be a good choice as the government is a majority shareholder through the National Property Fund.

Ironically, Schmögnerová praised the current lack of Eximbanka's activity "because if it had been active and acted upon the government's instructions to lend 80% of its overall portfolio for export to Russia, that would have been a bad political decision," she said, noting that the government guarantees all liabilities of Eximbanka. This way, she said, at least the government debt is not increasing.

However, she might be wrong. According to the latest reports, Eximbanka intends to borrow abroad 2 billion Sk to finance its activities.

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