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EXPANSIONIST HUNGARIAN HOUSE JOINS OTHER PRIVATISED BANKS IN ELECTING 'CLIENT-BASED' APPROACH

OTP bank puts murky IRB past to rest

THE CHILD of the sale of Investičná a rozvojová banka (IRB), one of Slovakia's most troubled banks, kicked off operations in August this year renamed OTP Banka Slovakia, with an eye on becoming one of the country's strongest banks and part of a larger regional banking network.
Although the now-renamed IRB had been one of the most problematic banks in the 1990s, Slovakia's banking sector cleanup between 1998 and 2000 cleared much of the bank's bad debt and sparked the interest and eventual entry of Hungary's largest bank, the National Savings Bank (OTP).
"Today, I can say openly without any exaggeration that we have all the preconditions to be, within five years, among the strongest Slovak banks," said OTP Slovakia head Károly Hodossy in late August.

THE CHILD of the sale of Investičná a rozvojová banka (IRB), one of Slovakia's most troubled banks, kicked off operations in August this year renamed OTP Banka Slovakia, with an eye on becoming one of the country's strongest banks and part of a larger regional banking network.

Although the now-renamed IRB had been one of the most problematic banks in the 1990s, Slovakia's banking sector cleanup between 1998 and 2000 cleared much of the bank's bad debt and sparked the interest and eventual entry of Hungary's largest bank, the National Savings Bank (OTP).

"Today, I can say openly without any exaggeration that we have all the preconditions to be, within five years, among the strongest Slovak banks," said OTP Slovakia head Károly Hodossy in late August.

"We have a strong and widespread network of 52 branches across all of Slovakia, in every larger town; we have successfully started the development of new products and services, and in the course of a few months we have shown that we can motivate our employees," Hodossy continued.

Since the beginning of August, when shareholders officially changed the name from IRB to OTP, the bank has embarked on an aggressive advertising campaign, promising a customer-oriented approach to banking that Hodossy says may have been lacking in Slovakia.

"My philosophy is to provide the client with service. One is often reminded of this on the Slovak banking market, but it's not always the case in practice," said Hodossy, a native of southern Slovakia's Dunajská Streda who had worked for a year as advisor in OTP's Budapest headquarters.

"There's no point in offering services that people don't need. It's the same as when you are in the supermarket and you sometimes buy things that are not necessary, and afterwards you are frustrated. Similarly, a client who finds that a bank has disappointed him loses faith in it," said Hodossy.

The change should come as a relief to shareholders and clients of the former IRB, which was Slovakia's first bank to go under forced administration in late 1997 after fraudulent loans and mismanagement led to deep losses and a cash shortage, causing the bank to lock its doors on uneasy depositors.

Implicated in that failure was deceased business power Alexander Rezeš, who transformed steel producer VSŽ from an industrial powerhouse turning a Sk4 billion per year profit into a Sk11 billion loss-maker in 1998. At the same time, Rezeš managed to find Sk100 million, then around $2 million, to build himself a villa in Spain.

As head of VSŽ, Rezeš expanded the group's holdings to include stakes in the Sparta Praha football team and alleged control of IRB, which allowed him in 1997 to nominate Vojtech Vranay, brother-in-law of his son Július, to the presidency of the bank.

IRB ran into liquidity problems that same year and was put under forced administration by the central bank.

Over the two years of forced administration, IRB began a slow turnaround, aided further by the 1999-2000 banking sector mop-up, in which Sk100 billion crowns in Mečiar-era bad debts, Sk15 billion from IRB, were transferred to bad loan clearinghouses Slovenská konsolidačná (SKo) and Konsolidačná banka (KoB) in preparation for bank privatisation.

However, in spite of IRB's having been the first bank put up for sale in June 2000, selling the bank proved a difficult task for the Slovak government, and the project was aborted several times before OTP was able to finalise the deal, acquiring a 92.5 per cent stake in April 2002.

As a clincher, the Slovak government had to agree to guarantee unpaid loan balances from IRB to state electricity producer Slovenské Elektrárne totalling Sk10.6 billion. In May, the guarantee was granted by the Finance Ministry.

In spite of IRB's troubled past, OTP has emphasised that the Slovak acquisition is part of a broader expansion strategy by its Hungarian mother company, which Global Finance Magazine recently praised for its innovation and agility in "what may be central Europe's most over-banked market."

"We want to create a banking network in central and eastern Europe. Our first acquisition was in Slovakia. Now we are looking for possibilities to enter the market in Serbia, Romania and Bulgaria," said Hodossy.

"We are focusing on markets that are similar to the one in Hungary," he said in explanation of the expansion strategy.

"People in Hungary have the same problems and have lived through the same things as people in Slovakia," he added.

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