Since 1998, major steps were undertaken by the Government to prepare the ailing banking sector for privatisation. Transfers of bad loans worth over Sk100bn were operated from the three largest banks (SLSP, VUB, IRB) to the one state hospital banks and one agency. In your opinion and on a general level, how would you qualify the way the restructuring of the banking sector has been handled so far by the Government?
Many of the previous governments promised to solve the problems within the banking sector. But similarly to the situation in the Czech Republic, it was more of a promise than steps actually taken. So from this point of view I appreciate very much that this government was able to carry out such steps as for example the transfer of SK106 bn of bad loans from the three banks that you mentioned. They were also able to increase the capital equity of the banks, for example in the case of our bank, our equity base increased by SK8.9bn. As far as equity is concerned we are the largest bank in Slovakia.
I have to admit that I did not expect that this government would be able to take those steps as quickly as it did on such a wide scale. However, it was criticised from the private sector because there was a plan initiated four or five years ago to revitalize the Slovak economy by putting some money into companies rather than banks. The money did not flow into the banks, it was rather into the Slovak economy. Today the people within the industry also understand that it was a right step in the right direction, the interest rate figures serve as a good example for this. Three years ago they were 21-22% and today they are about 8 -9%.
Without ailing the bank industry there would be no chance to reach interest rates similar to those we see in developed countries. This literally changed the life of companies. Having to pay more than 20% interest rate, a company would have to deal in shadow economy to reach a margin that enabled them to repay such high interest rates. Therefore I assume that the restructuring of the banking sector in Slovakia is not only considered to be highly positive by the banks but also positive from the point of view of the private and the corporate sectors.
State institutions are now responsible for debt collection. Knowing that half of the clients in the portfolios are bankrupt, how would you evaluate the debt collection process?
It is mostly a question of the strategy of this new institution, which will be created after the merger between Konsolidacna banka and Slovenska Konsolidacna in 2002. One of the possibilities lies in collecting the bad loans and trying to sell them, which sounds simpler than it actually is. The other is to try and revitalise the companies. But as most of the entities are almost totally bankrupt it does not seem to be the best solution. A team of specialists within the industry is currently working on another variant of revitalising only a small part of the companies. The problem is also that the bankruptcy law in Slovakia is rather different from other countries. Presently there is very little incentive to revitalizing a company. It is generally understood to be a process of liquidation for the company, gradually this process could be transferred to a system similar to that present in the U.S. which suggests a new start to the company. This would also require a change in the law and a change in the general approach to bankruptcy.
A new bankruptcy law was introduced in 2000. Do you still believe this law could be improved?
Last year our parliament approved new amendments to the bankruptcy law, which was a real step forward. But the next step to follow has to be the actual enforcement of the law. Unfortunately, this process is usually very slow in Slovakia. The substandard pace of the enforcement process sometimes results in a situation when we, as a bank, have certain rights but cannot exercise them as different courts will take different and very slow decisions. It is really disastrous waiting for the court decision for over a period of two or three years, whilst in process of bankruptcy.
Do you perceive any positive signs from the government in that aspect?
The overall position of the government is positive. They are certainly trying to improve the situation. The parliament consists of various parties with different programmes and interests, and indeed different lobbies related to them. The problem occurs if the people involved in the managing of a bankruptcy case try to exercise their power over the party and exert their influence. But in general I think the changes are made in the proper direction, although it could be done more dynamically.
Following the major restructuring process of the banking sector, IntesaBci offered EUR550m to buy 94% of VUB, including the IFC and EBRD stakes. What was the strategic interest for IntesaBci to take over VUB?
At the moment we are trying to define the new policy and strategy as a new member of IntesaBci. It is still too early to answer that question right now. Maybe in the next three or four weeks. The general direction is to improve the quality of corporate business and to provide our services to top clients. We are also focusing on improving and increasing our retail business, mainly in the area of active business by providing loans. Today, looking at our loan portfolios only 7% of our loans are within the retail business. Therefore we would like to reach a figure more or less in balance with the corporate sector. We would also like to improve financial services and diversify towards new types of financial services. | From 1998 the NBS started to use interest rates as the main instrument of its monetary policy. How would you describe the impact of that monetary policy on the inter-banking system?
Our system is not so sophisticated which means that banks are acting mostly in accordance with their own strategy and the level of equity of the national bank and its influence on commercial banks is much more lower than in the U.S. So for the next two or three years will follow the signals coming from the NBS, but we are not totally dependent on them. An example could be the Slovak BRIBOR and the discount rate. There is a correlation, but there is a huge delay. The commercial rates and BRIBOR are not exactly following the discount rate.
Although not all the banks are being sold, do you think that further mergers will take place over the next few years and that interest rates will keep on going down?
During the pre-election period there is always some level of instability and uncertainty. The volatility of interest rates is another related issue. Another important aspect is the entry to the E.U. If we are to be members of European Monetary Union, we will have to harmonize the figures with the E.U. norms. Two days ago we had a discussion with the governor of the National Bank of Slovakia. We discussed the NBS´s approach to the inflation rate. Whether they will consider the inflation rate at 5% sufficient, or whether they would rather like to bring it to a lower level.
Do you think that opening the border as well as the integration of Slovakia into the European Union is going to have an impact on the position of VUB on the regional market?
I hope that the entry of foreign investors is another important step in the right direction. We have always felt that we are ready to provide some services to various Slovak or international entities which are active in Slovakia. But without having such a partner as INTESA BCI we would not be able to provide services for such multinational clients. Today, VUB is ranked as the 400th bank, considering its total assets. This means that without such a partner abroad we would have no chance to continue even with very good figures and a high profit capital adequacy ratio, we would not be able to provide the services for top clients, which in Slovakia means multinationals.
Therefore EBRD was trying to pass the message that privatisation itself is not as important as an alliance with a strong partner. Unless we are able to give evidence of a strong partner, the top clients will move to other banks. Such a move may be determined by the decision from the centres or headquarters than due to the quality of services. And there is also another reason to be a member of the European Union: each bank will have a right to enter the Slovak market. Today they still have to be licensed, but in the future there will be 400 more and much stronger banks to enter the Slovak market. To be correct, theoretically the privatisation was carried out in 1993, but 51 % of the shares remained in the National property fund. On November 21, 2001, it was a sale of 94 % of the shares to a foreign investor. This I consider a real privatisation.
Another significant moment, not only for the bank but also for the country is are the coming legislative elections. Today you are the Chairman of VUB, so what would be your greatest challenge or ambition before the Autumn 2002.
The process of integration with IntesaBci is sometimes painful but I hope that it will not take a long time. To be slow would mean losing our clients and our position. Therefore my professional wish would be that this transformation goes on smoothly and that the clients will only see all the positive results coming from this integration with IntesaBci and the high quality of the services that we offer.
What is your final message to our readers, keeping in mind that they are investors and decision-makers from around the world?
Three years ago, when this government started to implement a policy that would attract investors there were many people opposed to this programme. The step was a good one and now we can see that foreign investors are not only bringing the money and access to the market, but they are also bringing the know-how, which is the most important and the ability to produce not only products but also new ideas. The most important is to be efficient, efficient in services, efficient in satisfying our clients up to the highest standards. I hope that within three years our bank will be considered as a bank providing the absolute highest standard of services.
Good motivation for foreign investors to come can be seen in the case of Volkswagen. They say that the qualification of our people is as high within the companies owned by Volkswagen. That is also one of the reasons they are investing so heavily in this country. They even plan to increase their production from 80bnSk to 100bnSk within one year, which is a huge step forward. This increase in production definitely proves their confidence in this country and its labour force.
Note: World Investment News Ltd cannot be held responsible for the content of unedited transcriptions. |
Všeobecná Úverová Banka, a.s.