Six years after the split of the Czechoslovak federation, the property of the Czech Commercial Bank hasn't been yet settled as the Slovak National Property Fund owns some 15% of the Czechoslovak Commercial Bank. The latter brought the settlement with the Slovak Revenue Company to an international court. Then there is also the General Credit Bank with 30% shares held by the Czech National Property Fund. CR can't handle financing further development of its commercial banks and will have to, in spite of the above international problems, push for privatisation of the banks. But that might accelerate the settlement of the Czechoslovak property. Financial analysts shockingly state that the state hasn't at all used its shares in the banks. Foreign critics often argue the existence of state shares in the Czech banks to be an important fact and the basis for possible state interference in the banking policy. The Czech banks are becoming too much of a burden and the state artificially finances their bonity. This closed circle of supporting the Czech banks has so far cost the Czech Republic Kc 160 milliard.

Czech banks are stuffed with real estate

Bad loans are no secret. At the end of 1997 the EBRD informed that CR ranked second worst in bad loans (after Ukraine). The bad debts in the Czech banks represent 35% of total volume of loans. Poland and Hungary show only 13% of those. Yet 46% of the loans in CR are guaranteed by real estate. That's too much (least real estate holds the Czechoslovak Commercial Bank - 10%, most has the Commercial Bank - 70% and the Czech Savings Bank - 63.25%). Possible bankruptcy proceedings by the Czech banks against the debtors last years because of complex court proceedings. Another problem is the value of real estate. Bad debts in the major Czech banks represent some Kc 264 milliard without the Kc 15 milliard of the unpaid debt of the Czech Commercial Bank for the Slovak and the Czech Revenue Companies. When the figure contains all, even small banks, at the end of 1997 it was Kc 384.3 milliard.

Why does CR speak of banking socialism?

Most criticised signs of the banking socialism in CR are, according to Peter Chvojka, Head Economist at the Czechoslovak Commercial Bank, determined by factors that the bank has no impact on. The connection of banks and businesses was based on voucher privatisation. Then nobody prevented the banks from opening investment funds and companies. Indeed, their activity was welcome. Legislative framework of privatisation didn't anticipate such a role of banks and didn't deal wit related proprietary responsibility. Deepening loan relations of the banks and thus indirectly owned companies represent an emergency solution of the borrowing activities.

Although the situation doesn't represent actual banking socialism, the fact is that the impact of open issues or rather those missed out in privatisation is such as if the banks functioned in a socialist environment.

The public opinion is driven by a feeling that only the state can guarantee public savings. A weak argument to the public remains that the public savings (except for the savings bank) aren't a source of the major banks. The public doesn't trust that a reliable and strong foreign partner can replace the stabilising role of the state.

The role of the Slovak banks in CR

Except for the Agrobank represented in Prague, it's only the General Credit Bank that operates as a real bank in CR. The Slovak Credit Bank is also the only East European bank there operating as a classical bank. Hungary also attempted to operate a bank in Prague (directly at the Venceslas Square), but quickly sold its Interbank to the German Bayerische Landesbank. The General Credit Bank settled in Prague to serve its Slovak clients and is thus in a different position than other foreign banks. Their services, because of good interest rates, are used both by the foreign and local businesses. Yet the GCB remains different. Trust in the Czech Commercial Bank will be different than in the Slovak one, although it's the largest commercial bank. It might have been a benefit from the beginning, as the statistics clearly show that since 1995 foreign banks gradually took over the good clients from the Czech banks through good interest rates. The Prague branch of the GCB managed to remain strong in the critical period, although it certainly couldn't bring many benefits to its Slovak headquarters. The situation hasn't changed much today. Competitive bank environment in Prague is tough and the GCB on Celetna Street has to provide adequate services similar to the other Prague banks. While the interest rates in Slvoakia bring some 22% on loans to the banks, no bank in CR makes more than 17-18% on interest rates. That's how much the Czech banks put on loans. When looking at loans by foreign banks, they operate at 10% or less. However, a small client isn't interesting for them.

Slovak Trade FORUM