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BANKING & FINANCE

IRB embarks on broad loan restructuring plan

Investičná a Rozvojová Banka, a.s., (IRB) - Slovakia's third largest bank - posted an unprecented preliminary loss of 1.2 - 1.3 billionSk ($40 million) for fiscal year 1996, sending tremors through the banking system, but its officials claim that it is only a part of the bank's restructuring plan.
"We decided to bite the bullet and carry out loan portfolio restructuring by ourselves," said IRB press secretary Jarmila Galandáková. "The other [formerly state-owned] banks are going to do the same thing. We are just the first." The restructuring plan agreed upon by the bank's shareholders, its management and the Bank Council of the National Bank of Slovakia (NBS) assumes that after creating a huge 1.9 billion Sk ($63 million) bad loan reserves in 1996, the bank will put away 1.1 billion Sk ($36.6 million) for the same purpose in 1997 and finish the operation in 1998 with an amount that has yet to be determined.

Investičná a Rozvojová Banka, a.s., (IRB) - Slovakia's third largest bank - posted an unprecented preliminary loss of 1.2 - 1.3 billionSk ($40 million) for fiscal year 1996, sending tremors through the banking system, but its officials claim that it is only a part of the bank's restructuring plan.

"We decided to bite the bullet and carry out loan portfolio restructuring by ourselves," said IRB press secretary Jarmila Galandáková. "The other [formerly state-owned] banks are going to do the same thing. We are just the first."

The restructuring plan agreed upon by the bank's shareholders, its management and the Bank Council of the National Bank of Slovakia (NBS) assumes that after creating a huge 1.9 billion Sk ($63 million) bad loan reserves in 1996, the bank will put away 1.1 billion Sk ($36.6 million) for the same purpose in 1997 and finish the operation in 1998 with an amount that has yet to be determined. Last year's loss will not be the last either. IRB forecasts a Sk 880 million ($29.3 million) loss in 1997 according to Jarmila GalandŠkovŠ and whether there will be any profit in 1998 remains to be seen.

IRB is not limiting its total restructuring plan on making provisions for bad loans. "We are working in two directions," said Stanislav Krcho, IRB Deputy General Director. "We are taking care of bad loans, but we also plan to expand our capital base by issuing new shares. A new issue with a minimum nominal value of Sk 500 million ($16.6 million) was approved by the bank's management, but we need the approval of the shareholders and of the NBS. We expect the issue to be on the program of the annual general meeting in May."

Spotlight

IRB fell into the spotlight after last year's general share-holders meeting. VSő, a.s., the powerful steelmaker from eastern Slovakia and owner of 14.64% of the bank's shares, along with other shareholders pushed through its nominees seizing one third of the bank's supervisory board, even though the bank was still supposed to be controlled by the National Property Fund (FNM) which owns 35.14% of shares.

Slovak law forbids any entity to acquire more than 15% of shares of any bank either individually or in association with other companies without the National Bank'NBS's approval. The NBS immediately started an investigation whether there was an association (the other major shareholder was ARDS, o.c.p., a.s, a company allied with VSő and many small shareholders of IRB appear to be associated with VSő according to the Slovak economic weekly Trend). This did not stop the new IRB supervisory board from appointing new top management two weeks ago.

Suspicions of ties between the IRB and VSő were strengthened when Vojtech Vranay, a brother-in-law of VSő Vice-president J¸klius RezeČ, became the bank's President. The VSő President JŠn Smerek further fueled rumors that the steelmaker has taken over theank to use it for its activities by statements at the end of March. "[The] objective of our capital participation in the bank is to support a flow of money, business and finances to our consortium," he said. "It is good to have the bank closer."

IRB officials tried to alleviate these speculations by saying that VSő borrowed only Sk 375 million ($12 million) from the bank and repaid it early on March 7, 1997. In this respect some economic observers believe the FNM will not be able to take part in the expected basic capital increase due to its lack of cash and the capital increase would thus amount to a complete privatization by VSő. IRB officials refused to comment on this and FNM officials were not available for comment.

IRB got into its predicament after inheriting bad loans from the former State Bank of Czechoslovakia, namely lending to cooperative housing projects and to the nuclear plant in Mochovce. Krcho though believes that those loans are not the root of IRB's woes. "Cooperatives are very good clients and pay in time," he said. "The only problem lies in the low interest rate, but the government pays the interest differential. As of December 31, 1996, we signed a loan restructuralization agreement with Slovenskť elektrŠrne, a.s., [the builder of Mochovce] and since then, they have stuck to the schedule."

Since these two categories together account for about two thirds of IRB's loan portfolio the question remains - if IRB is confident that it will get that money back - where do the billions of crowns worth of bad loans come from? GalandŠkovŠ said that the so-called "small privatization" loans are the only troubled lending IRB has done since the Velvet Revolution.

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