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Foreign owners unlikely in banks' privatization

When Finance Minister Sergej Kozlík said recently that foreign partnerships should not be ruled out in the privatization of the country's three major banks, it looked like foreign capital finally would get a crack in Slovakia's tightly-gripped privatization saga. But at least one government source has cast doubt on Kozlík's aperture, while financial analysts said it was more likely that foreign entities could get involved in ways besides buying direct shares.
Asked about Kozlík's remark, an official at the Finance Ministry who preferred anonymity told The Slovak Spectator that the government's position is that "foreign investors should not privatize a major share in the three banks or Slovenská Poisťovňa [the Slovak insurance company]. As far as I know, no decision has been made."

When Finance Minister Sergej Kozlík said recently that foreign partnerships should not be ruled out in the privatization of the country's three major banks, it looked like foreign capital finally would get a crack in Slovakia's tightly-gripped privatization saga.

But at least one government source has cast doubt on Kozlík's aperture, while financial analysts said it was more likely that foreign entities could get involved in ways besides buying direct shares.

Asked about Kozlík's remark, an official at the Finance Ministry who preferred anonymity told The Slovak Spectator that the government's position is that "foreign investors should not privatize a major share in the three banks or Slovenská Poisťovňa [the Slovak insurance company]. As far as I know, no decision has been made."

The big three

The three banks up for privatization are Slovenská Sporiteľna (Slovak Savings Bank), Investičná a Rozvojová Banka (Investment and Development Bank - IRB), and Všeobecná Úverová Banka (General Credit Bank - VÚB).

Representatives in the financial sector said that while a foreign-domestic partnership could present real benefits to Western banks, they said such an alliance is not likely. "I know that investing in Slovenská Sporiteľna is something foreign banks would be very interested in," said Peter Gabalec, a trader with the brokerage firm Slavia Capital.

"Sporiteľna controls 85 percent of private deposits on the Slovak market, while VÚB has approximately 700 branches in the country." But because of the three banks' importance, Gabalec said, "I don't think our government will offer [outside investors] a big stake in the financial sector here." Agreeing, Tim Stephens, a financial analyst at Tatra Banka, said, "Privatization in Slovakia has been almost exclusively domestic, cashless transfer of ownership. Bank privatization will be no different."

Outside capital first

Many analysts think that before they go up for privatization, the three banks will likely first clear up their balance sheets by drumming up capital from abroad. "The banking industry needs additional capital, amounts which domestic investors most likely cannot provide," said Stephens.

"I think the banks will have to raise funds on the international capital markets, most likely in the form of subordinated debt, which will be accounted for as capital."

Then they will be privatized, analysts said, most likely to Slovak investors and where control is kept within existing structures.

"This type of financing will allow banks to increase capital, without giving up ownership, voting rights, board seats or management control," Stephens explained further. "It's the ideal situation, whereby the banks will get the necessary funds from abroad, but then be sold to domestic investors."

Creditanstalt's Chren agreed, using an example. "VÚB could swap the ownership of certain shares with another bank without selling anything."

Competence is essential

If the three banks eventually are placed into private hands, analysts agreed that the new owners must be experienced in the field. "The worst scenario is the loss of professionals from the banks," said a source at a Western bank operating in Slovakia. "The bank owners must have integrity and be absolutely reliable. The question does not concern the selling of the banks so much as to whom the banks are sold."

The same source said a bank privatization "nightmare" would be if the institutions were sold to irresponsible owners. "If the bank is lending money to its friends, it ceases to behave as a bank, and the danger to its portfolio grows."

"This is what happened to the banks in the Czech Republic," the source continued. "The corporate owners of [the newly-privatized] banks made big loans at low rates to their subsidiaries, who never paid them back. Of course, if the political pressure is there, it makes the situation that much worse."

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