Public offering is likely approach for PKO BP privatization
The country's largest retail bank, Powszechna Kasa Oszczednosci Bank Panstwowy (PKO BP), will be privatized through a public offering of shares rather than by a sale to a strategic investor, the Business Journal has learned.
However, a schedule for the offering and the amount of the bank that would be sold through stock markets has yet to be decided.
"No decision has been made yet as to the time of the privatization," Jaroslaw Bauc, deputy finance minister and chairman of PKO BP's supervisory board told the Business Journal. "But it should happen not later than in the year 2001."
Bauc refused to confirm the proposed method of privatization. Analysts said such an approach could work, but success would depend on a large number of variables.
"A lot depends on the public offering," said Artur Szeski, banking analyst with CDM Pekao Securities. "If the offering is small, say between 10-20%, it doesn't change a lot."
Such an approach would be in line with recent large privatizations, such as Telekomunikacja Polska (TPSA), he added, where 15% of shares were sold during its initial public offering (IPO) and then a tender for a strategic investor was held.
"But later, this leads to two solutions," Szeski said. "The owner starts to look for a strategic investor, or another offering is organized."
At the end of June 1999, PKO BP had zl. 61.3 billion ($14.6 billion) in total assets, making it the largest bank in the country on this basis. It also had 43.6% of retail deposits, making it the leader in this market.
The bank expects to complete the first step toward privatization, its transformation into a joint-stock company wholly owned by the Treasury Ministry, by the end of this year.
"PKO BP will start the year 2000 as a joint-stock company," Bauc said, adding that this is important because the bank needs to be able to match its closing and opening balance sheets as of Jan. 1.
Going public will also entail an overhaul of the bank's structure as outlined in a three-year restructuring program submitted last month to the Banking Supervision Committee (KNB). The program includes cost cutting, business expansion plans and the establishment of effective credit-risk assessment structures independent from the bank.
The latter is especially important as inadequate risk assessment procedures led to the suspension last week of PKO BP President Andrzej Topinski.
The reason was questionable lending practices at a small branch in Stalowa Wola, Bauc said. Between February and July of this year, the branch increased credit activity by several hundred percent and gave zl. 80 million ($19.04 million) in questionable loans to related entities.
"With proper risk-assessment instruments, such a situation would never happen," Bauc said. He added that the bank's supervisory board had questioned the lack of adequate risk-assessment procedures several times in the past.
However, Bauc would not detail why the board acted now when the bank's supervisory and management boards will be replaced anyway at the end of the year due to the change in PKO BP's commercial structure.
Besides questionable lending practices, the bank must also still grapple with the question of old loans, specifically housing credits.
As of June 1999, the bank's old housing loan portfolio, which was foisted upon it in 1987 after being hived off from the central bank, was zl. 5.01 billion ($1.2 billion). The question is how to treat these loans, since a large percentage of them are questionable.
The KNB has said the loans either need to be guaranteed by the government through legislation, or the bank needs to make adequate provisions for them. The government has said it would guarantee the loans, but has not done so legally.
This is the solution PKO BP is pushing for. Otherwise, creating provisions for the loans would blow a zl. 1.7 billion ($404 million) hole in PKO BP's balance sheet. This is because the bank would have to undertake additional provisioning of zl. 110 million ($26.2 million) that would result in a decrease in the bank's results for the 1997-1999 period by zl. 1.7 billion gross and zl. 1.79 billion ($426 million) net. To maintain its solvency ratio at 12%, the bank has said it would then need additional capital of zl. 1.6 billion ($380 million).
The KNB had set an end-November 1999 deadline for the bank to resolve the issue. It then agreed to an extension to the end of the first quarter 2000 for a resolution.
PKO BP ended 1998 with a zl. 1.3 billion ($372 million) net loss, compared to healthy profit in previous years zl. 621.8 million ($194 million) in 1997 and zl. 1 billion ($370 million) in 1996. At the same time the bank has continued to see its dominance of the retail bank sector erode. Its share of individual accounts dropped to 43.6% at the end of 1998, compared to 62.5% in 1995.
