THE SLOVAK banking market is becoming smaller and more competitive as financial institutions merge and foreign capital enters the country.
All but two former state-owned banks have been privatised, and a tender for one of the remaining banks, the tiny Banka Slovakia, is due to close April 25 as the three-year old process of bank restructuring approaches completion.
The tender for a 60 per cent stake in Banka Slovakia was extended March 22 for one month in an attempt to draw more bidders. If successful by April 25, it will leave Poštová banka as the only finance house not privatised. This is the third attempt to privatise Banka Slovakia.
But while privatisation has led to increased competition, better bank management and higher profits, corporate lending remains sluggish as banks seek to avoid the risky lending of the past.
The privatisation drive has seen Slovakia's largest bank, Slovenská Sporiteľňa (SLSP), go to Austria's Erste Bank, Všeobecná úverová banka (VÚB) go to the Italian IntesaBci bank, and Investičná a rozvojová Banka (IRB) go to the Hungarian OTP group.
Through consolidation and the crash of five smaller institutions, the number of banks operating in the country has fallen to 20, and experts expect the market to shrink even further. According to Ján Toth, chief economist at ING Nationale-Nederlanden, "it's probably safe to say there are too many banks for a market like Slovakia. I expect there will be further consolidation."
Some, like European Bank for Reconstruction and Development (EBRD) project manager Tocher Mitchell, see advantages in the consolidation. "The market's going to become more sophisticated because you're bringing to the fore the human and financial resources of some of the biggest banks in Europe," said Mitchell
Despite the entry of foreign banking institutions and an increase in financial company profits last year to Sk12.8 billion, a jump of 46.1 per cent from 2000, banks remain reluctant to increase corporate lending.
Mitchell said: "The banks are being very cautious following the bad experiences they had during the 1990s. Until good credit procedures are put in place, and they've trained their lending staff, the banks are going to be a little bit slow to start lending in a big way."
Toth said sluggishness in corporate lending was due to stringent risk evaluation. "In terms of corporate debt, the loan selection process is much tougher. Only the companies that have potential, especially in terms of exports, or that have shown profit for the last couple of years are getting loans. The remaining companies have problems persuading banks.
"There is pressure from banks on companies to change their corporate governance, to improve their behaviour and push for higher productivity," he said.
The cautious approach is a new element in Slovakia's banking system, which has seen five bank collapses under the Dzurinda government and over Sk100 billion in bad debts cut out of state-owned banks that were found to have extended credit with absurdly little security under the 1994-1998 Vladimír Mečiar government.
Tóth said poor lending practices in the past had been partially compensated by the high yields on government bonds, which approached 30 per cent in 1998, and helped badly managed banks shore up shaky loan portfolios.
"Banks in the past had easy business giving loans to the government. The interest rates, because of the fiscal extravagance of the previous government, were very high, and it was relatively easy to make profit just by getting deposits from people and then placing them with the government," he said.
"The game has changed because the interest rates have decreased to more normal levels. Now, for a bank to be profitable, it has to give loans or offer more structured products to make profit."
Problematic loan portfolios are much less of a problem at the moment, says VÚB general director Ladislav Vaškovič. "The period where credit was granted without any kind of know-how has ended. Today banks have relatively clean portfolios. This is an absolute priority because they know that they're not going to get any help from the government.
"The development of credit portfolios at individual banks and in banks as a whole is connected with the economic development of the country. If the economy is reviving, there is a growth in the need for credit, because there are not enough resources in the business sphere," he said.
There are some indications that the 'credit-crunch' may be coming to a close. According to Toth, figures from the end of 2001 and beginning of 2002 show that growth in credit to corporate entities exceeds producer price inflation.
"The overall effect," says Toth, "is that we already have a positive real growth in loans to enterprises."