PKO needs more capital, cleaner loan portfolio for likely 2000 sale
"I can see all preconditions to make this privatization happen," said Jaroslaw Bauc, deputy finance minister and chairman of PKO BP's supervisory board. "And if it's not finalized by the end of next year, it should at least start."
One of the last state-owned banks to be privatized, former savings bank PKO is the largest financial institution in Poland with total assets of zl. 56.7 billion ($15.3 billion).
Before PKO's sale can go ahead, however, the bank needs to come to terms with stacks of old housing loans issued before 1989. Bauc said that the institution may need fresh capital once those loans have been gone through, although he could not put a figure on how much money would be needed.
The bank was saddled with the loans when the national bank split its assets after the system change 10 years ago. The bank holds 5.4 billion ($1.54 billion) worth of old loans given to housing cooperatives under communism to pay for refurbishments. Those cooperatives, however, had difficulty paying the money back after the hyperinflation of the early 1990s.
The bank has already established zl. 250 million ($71.42 million) in provisions to cover the loans. PKO blames the provisions for its weighty, zl. 690 million ($197 million) loss last year. That compares to a 1997 net profit of zl. 621.8 million ($194.3 million) and more than zl. 1 billion ($357 million) in 1996.
That hole has Bauc and others saying that PKO is going to need fresh capital. The possible amount, however, will not be known until the bank's new auditor, Arthur Andersen, sorts through its 1998 books. The bank's contract with previous auditor PricewaterhouseCoopers expired last year and Andersen won the new tender.
"The situation is currently being examined by the auditor, Arthur Andersen, which is trying to evaluate the market value of the old loans," Bauc said.
Once that is complete, the state treasury will decide how to recapitalize the bank, he said, although he was not able to give any estimates as to the size of the funds needed. "The amount of necessary support should be equal to the difference between nominal and market value of the loans," Bauc said.
One of the difficulties in sorting through the loans is that each member of the housing cooperative is responsible for his or her portion of the loan. If one member of that cooperative cannot make the payment, the entire loan is usually treated as irregular, Bauc said.
PKO spokesman Janusz Ostaszewski, however, denied that the bank needed additional capital. "It would be necessary when our solvency ratio is not adequate," he said. "But this is not the case."
As at the end of 1998, PKO's solvency ratio was 10.36%, well above the required level of 8%. The bank had a capital base of zl. 3 billion ($857 million), 19% higher than at the end of 1997. Total assets increased by 21% to zl. 56.7 billion ($16.2 billion).
In addition to heavy provisioning for old housing loans, PKO had to set aside zl. 6 billion ($1.7 billion) for mandatory reserves covering its zloty denominated deposits, Ostaszewski said.
PKO, which has about 3 million customers, is also quickly losing market share in individual accounts. In the last four years, the bank's market share in current accounts plunged from 62.6% to 43.6%. In the last year alone, the number of PKO's current accounts increased by 15% only and its market share dropped by 7%.
The bank was far less aggressive in finding new customers than other retail outfits. For example, Bank Slaski last year recorded a 97% increase in current accounts, and Pekao saw 75%.
The result for PKO was a slight decrease in revenue from banking operations. That revenue fell to zl. 2.5 billion ($714 million), from zl. 2.6 billion ($812 million) in 1997. Moreover, the bank's costs increased by 28.5%.
One of the last state-owned banks to be privatized, former savings bank PKO is the largest financial institution in Poland with total assets of zl. 56.7 billion ($15.3 billion).
Before PKO's sale can go ahead, however, the bank needs to come to terms with stacks of old housing loans issued before 1989. Bauc said that the institution may need fresh capital once those loans have been gone through, although he could not put a figure on how much money would be needed.
The bank was saddled with the loans when the national bank split its assets after the system change 10 years ago. The bank holds 5.4 billion ($1.54 billion) worth of old loans given to housing cooperatives under communism to pay for refurbishments. Those cooperatives, however, had difficulty paying the money back after the hyperinflation of the early 1990s.
The bank has already established zl. 250 million ($71.42 million) in provisions to cover the loans. PKO blames the provisions for its weighty, zl. 690 million ($197 million) loss last year. That compares to a 1997 net profit of zl. 621.8 million ($194.3 million) and more than zl. 1 billion ($357 million) in 1996.
That hole has Bauc and others saying that PKO is going to need fresh capital. The possible amount, however, will not be known until the bank's new auditor, Arthur Andersen, sorts through its 1998 books. The bank's contract with previous auditor PricewaterhouseCoopers expired last year and Andersen won the new tender.
"The situation is currently being examined by the auditor, Arthur Andersen, which is trying to evaluate the market value of the old loans," Bauc said.
Once that is complete, the state treasury will decide how to recapitalize the bank, he said, although he was not able to give any estimates as to the size of the funds needed. "The amount of necessary support should be equal to the difference between nominal and market value of the loans," Bauc said.
One of the difficulties in sorting through the loans is that each member of the housing cooperative is responsible for his or her portion of the loan. If one member of that cooperative cannot make the payment, the entire loan is usually treated as irregular, Bauc said.
PKO spokesman Janusz Ostaszewski, however, denied that the bank needed additional capital. "It would be necessary when our solvency ratio is not adequate," he said. "But this is not the case."
As at the end of 1998, PKO's solvency ratio was 10.36%, well above the required level of 8%. The bank had a capital base of zl. 3 billion ($857 million), 19% higher than at the end of 1997. Total assets increased by 21% to zl. 56.7 billion ($16.2 billion).
In addition to heavy provisioning for old housing loans, PKO had to set aside zl. 6 billion ($1.7 billion) for mandatory reserves covering its zloty denominated deposits, Ostaszewski said.
PKO, which has about 3 million customers, is also quickly losing market share in individual accounts. In the last four years, the bank's market share in current accounts plunged from 62.6% to 43.6%. In the last year alone, the number of PKO's current accounts increased by 15% only and its market share dropped by 7%.
The bank was far less aggressive in finding new customers than other retail outfits. For example, Bank Slaski last year recorded a 97% increase in current accounts, and Pekao saw 75%.
The result for PKO was a slight decrease in revenue from banking operations. That revenue fell to zl. 2.5 billion ($714 million), from zl. 2.6 billion ($812 million) in 1997. Moreover, the bank's costs increased by 28.5%.
