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Czech Republic: Yet Another Banking Crisis Strikes

  • Jolyon Naegele

Prague, 18 September 1996 (RFE/RL) - The Czech Republic's National Bank yesterday forced Agrobanka, the country's largest private bank and the fifth largest Czech bank overall, into receivership. The decision followed an all-night session of Prime Minister Vaclav Klaus' cabinet with the central bank managers.

This marked the country's 13th post-communist banking scandal. In the last six years, six banks were forced into liquidation. The central bank put the other six into receivership.The current crisis came after repeated assurances by Klaus and other government leaders that no new banking problems were expected.

Czech National Bank Governor Josef Tosovsky said the central bank will guarantee all of Agrobanka's obligations. He also said that other large Czech banks will provide Agrobanka with a standing loan of 6,000 million crowns ($231 million) should the bank need financing to resolve its liquidity problems. Tosovsky says Agrobanka currently has deposits of up to 40,000 million crowns ($1.53 billion).

The reasons for Agrobanka's difficulties are many. The economics daily "Hospodarske noviny" quotes Tosovsky as saying that in the course of last year, Agrobanka largely replaced its active holdings with other, less liquid instruments.

Agrobanka's liquidity problems are said to be linked indirectly to the collapse of the Plzen-based Kreditni Banka, which had incurred losses of almost 12,000 million crowns ($451 million). Several directors of the bank have been detained. Kreditni Banka is due to be liquidated at the end of this month.

Both President Vaclav Havel and Tosovsky have insisted that no direct link exists between the collapse of the Kreditni Banka and the situation in the Agrobanka.

But Tosovsky said yesterday that Agrobanka's situation had worsened as a result of the investigation into the collapse of the Kreditni Banka. One of the detained directors of the Kreditni Banka was also a member of Agrobanka's board of supervisors.

Another reason for Agrobanka's difficulties was a recent wave of large withdrawals of funds by state institutions. These withdrawals are said to have damaged Agrobanka's stability, harmed its liquidity and led big banks, such as Ceska Sporitelna, the country's main savings bank, to cease lending to Agrobanka.

But there seem to be far more reasons for Agrobanka's liquidity problems. An analysis in today's edition of the Prague newspaper "Dnes" says Agrobanka's difficulties are rooted in the larger issues of economic politics.

"Dnes" says that those issues include an attempt by the government to force Motoinvest, a private investment group specializing in financial ventures, out of the banking sector. Motoinvest has been involved in the Plzen Kreditni Banka. Shareholders allied to Motoinvest controlled Agrobanka. Motoinvest general director Pavel Tykac left the country earlier this week saying his life was in danger. He was followed into a self-imposed exile by Kreditni Banka board member Libor Sadilek.

Motoinvest angered the government early this year by unleashing a somewhat misleading media campaign to persuade small investors to sell their shares to the group. Motoinvest also attempted to gain significant influence in the banking sector through hostile takeovers of some banks' investment funds.

About three months ago, several state financial institutions, including the National Property Fund and the country's largest health insurance company, Vseobecna Zdravotni Pojistovna, began withdrawing their deposits from Agrobanka. Agrobanka was also forced to pay off its obligations to other state-affiliated depositors. This worsened its liquid assets. Other banks refused to lend to Agrobanka, presumably because of its connections to Motoinvest.

Last month Agrobanka's employees, aware of the difficulties, began withdrawing their own savings from the bank amid rumors that the bank had an overdue uncovered 10,000 million crown loan to the Slusovice agro-industry combine. So far neither the central bank nor Agrobanka have commented on the alleged loan.

Yesterday Motoinvest director Jan Dienstl announced the investment firm is withdrawing from the banking sector.

The latest scandals may weaken the Czech crown, at least temporarily. But they have united rather than divided the main parliamentary parties. Opposition Social Democratic leader Milos Zeman, who only yesterday demanded the resignation of Finance Minister Ivan Kocarnik, now retracted this demand saying it was premature.

Klaus, who as recently as Monday had opposed the creation of a parliamentary commission, saying it would be "the last thing that could help matters" made an about face, and for the first time since parliamentary elections three and a half months ago, invited Zeman for a talk in his office.

Last night, both men were already working together to establish a parliamentary investigative commission to look into the latest round of banking scandals.

"We consider the banking sector to be a matter that should be above our standard differences and disputes," said Klaus.

Meanwhile, yet another Czech bank may be facing difficulties. The Prague daily "Pravo" today reported the arrest of Jan Roucka, the director of Plzenska Banka and a former director of the Kreditni Banka. Plzen judge Jan Speta ordered Roucka held in custody for his alleged role in the Kreditni Banka crash, including misuse of funds and harming the bank's creditors.