An extraordinary shareholders meeting (EGM) of Investičná a rozvojová banka (Investment and Development Bank - IRB) approved on April 29 a basic capital increase by 2.0 billion Sk ($58 million). The capital infusion is expected to be provided by Slovakia's largest financial institutions, Slovenská Poisťovňa (SP) and Slovenská Sporiteľňa (SLSP), both of which are controlled by the state.
"I believe that shareholders today made the first step towards the recovery of the bank," said Dušan Krkoška, IRB's caretaker administrator who had been imposed by the National Bank of Slovakia (NBS).
Krkoška continued that SLSP, the biggest Slovak savings bank, and SP, the biggest Slovak insurer, were "candidates for a capital increase at IRB," adding that no foreign investors had officially expressed any interest in buying into IRB. Both domestic candidates are controlled by the state through the National Property Fund (FNM), the state privatization agency.
IRB, Slovakia's third largest bank, has been under caretaker administration since December 1997 due to liquidity problems. IRB was the first large Slovak bank to run into such problems, and was bailed out only when the NBS stepped in and injected about 11 billion Sk ($314 million) over four months to enable the bank to pay off its depositors and improve its performance.
According to NBS Governor Vladimír Masár, the central bank had originally been hoping for at least a three billion Sk ($85 million) injection. "The optimum capital increase is the biggest possible increase," he said one day before the EGM.
The central bank proposed at a March EGM that an unspecified stake in IRB be sold to a "banking entity" to help the bank recover from liquidity problems. But the FNM and VSŽ Holding, the biggest IRB shareholders who control 35% and 15% of the bank, respectively, voted together to block the sale and said they would seek ways to increase the bank's basic capital themselves.
The central bank has twice rejected VSŽ's request to increase its stake in IRB to above 15%, which is the legal limit for holdings in a bank without central bank approval. VSŽ said earlier last month it would not ask the central bank again to approve an increase of its stake in the IRB. Krkoška confirmed that neither the FNM nor VSŽ have as yet expressed an interest in taking part in IRB's capital increase.
However, given that VSŽ owns a 20% stake in SP, it does have a certain say in IRB's future capital increase. "Negotiations with [the SLSP and SP] about the concrete conditions for an increase in IRB's basic capital...are going on at present," VSŽ said in a statement one week before the April EGM.
The capital increase is still subject to the approval of the NBS and the Finance Ministry. But according to Masár, the central bank will not try to prevent SLSP or SP from pouring their capital into IRB.
On another front, Masár said, the NBS is continuing to investigate the root causes of IRB's downfall. "The NBS is staying focused on resolving the cause of the IRB situation," he said at an April 30 press conference. "At the beginning of [last] month, we submitted a 100-page document to the financial police, which contains suggestions of serious illegal transgressions by individuals which negatively influenced the bank's activities."
IRB, which was partially privatized through a voucher scheme in 1992 and 1993, posted a preliminary 1997 loss of 3.06 billion crowns. The bank dipped into the red in 1996 after heavy loan provisions, posting a loss of about 1.2 billion crowns following a profit of 167.5 million in 1995.
According to VSŽ Holding, the preliminary value of the bank's own capital was minus 9.5 billion crowns at the end of March. Before caretaker administration was imposed, IRB's basic capital had been one billion crowns.
"It is my opinion that any possible loss in the bank should be covered by shareholders," Masár said at the conference.
When pressed by journalists to say if the individuals responsible for the IRB crash would be punished, Masár responded "if the share price of the company drops to 30 Sk [$1], don't you think it's enough of a punishment?"
Additional reporting by Spectator Staff Writer Slavomír Danko.
