Tomáš Kmeť
Since this is the last banking column this year, it is perhaps a good time for a short review of major factors and events of the year 2000.
Undoubtedly, the most significant news for the banking sector and for the health of the whole economy was a decision to bring the privatisation of state banks to an end without delays. Although it is clear that economies in emerging countries can be restructured only through FDI and a stable and functioning banking sector, it was not all that clear that the Slovak government would be consistent with its privatisation decisions.
Considering the "social" leanings of left-wing parties, the strong opposition and the generally bad public perception of privatisation, continuity in bank restructuring is a credit to the government of Mikuláš Dzurinda. The largest Slovak bank, Slovenská sporiteľňa, has just been bought by Austria's Erste Bank. Všeobecna úverová banka, the second largest, should be sold in the first half of 2001.
Moody's rating agency also improved its outlook for the Slovak banking sector on the strength of privatisation, and praised changes to the sector's legal framework, mainly the amendments to the Banking Act and Bankruptcy laws, aimed at introducing a degree of prudence to banking.
If we look at the growth of loans from banks to the private sector we can see there was a real credit crunch: the 1.2% growth in loans to the corporate and retail segments since the beginning of this year confirms the existence of a strict lending policy.
Although it is broadly expected that more new loans will be extended next year when the privatisation of state-owned banks is complete, this in reality is unlikely. The situation in the corporate sector will remain difficult, and holes in the legal framework of corporate governance which brought companies and state agencies into a circle of mutual indebtedness will remain.
Nor does low fiscal discipline and weak creditor protection create space for a growth in loans. Banks are competing hard for a few major clients, mainly big market players and international companies. Small and medium sized enterprises (SMEs) are still considered too risky, even those with good projects and business plans. The problem remains that of guarantees.
SMEs cannot usually back up loans with their assets, and conservative banks seldom accept other guarantees. A credit boom will therefore occur only with an improved legal framework and sound business practices. The government made the first step by introducing new laws, however it make sure these are strictly enforced. Slovakia is therefore likely to experience another credit crunch next year.
Tomáš Kmeť is a sector analyst with state bank Slovenská Sporiteľňa. His Banking and Finance column appears monthly.
Author: Tomáš Kmeť
