ALTHOUGH the European Commission has not yet officially said whether Slovakia will be allowed to enter the eurozone, businesses are being advised to inform their banks by the end of February how much euro cash they are going to need for the first few days after the planned changeover to the euro in January 2009.
A failure to do so could paralyze businesses and inflate the transition costs, commercial banks warn. The law obliges businesses to give change in euros between January 1 and January 16, 2009, even if the customer pays in Slovak crowns.
After receiving their clients' reports, the banks will report their estimate of needed cash to the central bank, which will oversee the primary frontloading; the process of euro cash being distributed among commercial banks.
Ideally, companies should secure euro cash for the first 16 days after the currency's introduction, a period when both the euro and the crown will still be in use. However, the first week will be crucial, said Igor Barát, government plenipotentiary for euro adoption.
"The lack of euro cash might hinder the functioning of business," Barát told The Slovak Spectator. "Put simply, if a cashier does not have enough euros to give change to customers, they will simply take their business to someone who is better prepared."
The company can still obtain the euro cash later, but it might be costlier and take more time, Barát said.
Requesting euro cash is not so much a duty as a task which acts in the interest of businesses that work with cash, he added.
The process of frontloading is regulated by the European Central Bank and the same regulations apply to Slovakia. The country's central bank plays a key role in the primary frontloading. However, it will be the commercial banks that will be in direct contact with their clients in terms of euro cash estimations.
"Some banks have been contacting client companies themselves, but if a business has not been approached yet, they should contact their bank" said Jana Kováčová, spokeswoman for the National Bank of Slovakia (NBS).
Businesses should sign contracts with their banks for secondary frontloading by the end of March, which obliges them to secure suitable conditions for storing the euro cash during the entire frontloading period, according to the central bank.
Commercial banks will either deliver the euros to their destination or the businesses will be able to pick the cash up at their bank's branches, Kováčová told The Slovak Spectator.
The central bank estimates that the primary frontloading for the banking sector will require €995 million but it is not yet known how much of it would be used for secondary frontloading.
"€995 million is a preliminary estimate," said Kováčová. "The banks should report their euro needs to the NBS by the end of March and the NBS will prepare the cash they require."
The NBS can acquire bank notes from any central bank in the eurozone. Slovakia will be turning to the Austrian central bank to get its cash, Kováčová added.
Armored Slovak police cars will meet Austrian central bank transports of banknotes at the Slovak-Austrian border and guard the cash on its way to the NBS. Special units from the ministries of interior and defense will secure the distribution of the cash among the commercial banks, reported the Aktualne.sk news server.
The frontloading concerns mainly large and medium-sized firms and institutions working with cash, said Elena Kohútiková, head of the VÚB Bank Euro Committee.
"The frontloading affects, for example, the postal service and large retail chains and large stores, as well as the railway and bus transportation," Kohútiková told The Slovak Spectator. "This type of frontloading is not intended for small businesses, such as kiosks or newspaper stands."
Banks set their conditions individually, Barát said, explaining that there are no criteria for a company's eligibility for euro frontloading but that the banks will specify conditions under which they will provide the cash.
Firms must secure suitable storage places including certified safes and a collateral and make it possible for the central bank to audit the firm and verify the fulfillment of conditions for the frontloading, said Kohútiková.
"Firms must also meet the requirement of tracking the cash's movement for statistical purposes through their commercial bank," Kohútiková said.
Boris Gandel, spokesman of Tatra Banka, said that the firms must also secure a sum on their account equivalent to the sum of the requested euro bills.
Incorrect estimation of the needed cash might result in additional costs: if they order too much cash the companies will have to boost their storage capacities, but if they order too little, or notes in a higher value than needed, they might endanger their operation, said Kohútiková.
Also, if the firms fail to meet the conditions, the central bank might penalise them 10 percent of the ordered sum.
According to Kohútiková, the banks' clients should take the highest demand for daily cash in 2007 and consider the number of days for which they will need the supply.
Štefan Frimmer, spokesman of the Slovenská Sporiteľňa bank, said that the bank has been helping its clients with the estimation.
Thanks to the bank's web-tool EuroCalculus, the banks can easily calculate the volume of the cash that will be needed during the transition to the euro in 2009, Frimmer said, adding that it is an aid that Austrian businessmen also appreciated when preparing for the frontloading.
"The volume of needed cash depends on the number of customers, the company's turnover and the area that it operates in," Frimmer told The Slovak Spectator.
Tatra Banka, according to Gandel, also offers a web tool for the calculation of frontloading sums.
"However, this tool has only an informative character and it does not substitute the companies' own analysis of their cash need," Gandel told The Slovak Spectator, adding that Tatra Banka recommends clients to estimate the euro cash for the first five days of 2009.
The commercial banks also have been warning their clients about the possible risks.
"The turn of the year and the summer months are the times when banks record an increasing amount of forged currency, both Slovak and foreign," said Frimmer. "In association with the introduction of the euro we expect to see an increased amount of counterfeit money."
Clients should only accept cash from credible sources and check all their safety features, he added.
Slovenská Sporiteľňa detects seven counterfeits monthly, while the most frequently forged denominations are €50, €100 and €200, Frimmer said.
"We expect to see an increased occurrence of false Slovak crown notes leading up to the introduction of the euro," Frimmer told The Slovak Spectator. "After January 16, it will not be possible to pay in crowns, so forgers will try to dump them sooner."
Slovak firms have improved their preparations for the euro adoption with 46 companies already having an analysis of the impact of euro adoption and a third have allocated funds and people for euro-related projects, said a recent Ernst & Young survey.
11. Feb 2008 at 0:00 | Beata Balogová