OTP Unveils Plans About Bulgarian Banka DSK

By Ivan Mihalev

The lack of news on the privatisation of Bulgaria's former state savings bank Banka DSK was abundantly compensated by the statements of candidate buyers last week. Hungarian OTP Bank, which is believed to be leading the race by offering the highest price, decided to catch up with its rival, Austria's Erste Bank, in the field of PR. OTP senior management staff, headed by OTP Chairman and CEO Sandor Csanyi, arrived in Sofia to meet Bulgarian media. The delegation comprised also deputy CEO Laszlo Wolf, Zoltan Speder and Miklos Nemet as well as a large team of the consultancy firm McKinsey & Company. The OTP top managers used their visit to meet the Bulgarian Prime Minister Simeon Saxe-Coburg-Gotha and representatives of the country's opposition parties, The Union of Democratic Forces (UDF) and the Bulgarian Socialist Party (BSP). Obviously, political shuttles have become part of banks' privatisation in Bulgaria. It is no secret that Erste Bank made such probes in Sofia at a much earlier stage of the race for Banka DSK, when Erste Bank CEO Andreas Treichl and the bank's financial director Reinhard Ortner met the Bulgarian Government, UDF and BSP. This gave the bank much better positions among the Bulgarian political elite, despite the fact that Erste's bid of 293 mln euro was lower than the 311 mln euro offered by OTP for 100 pct in Banka DSK. The Bulgarian Bank Consolidation Company (BCC) was expected to name OTP the winner of the tender, but the scandals, which broke out in the meantime, shook the privatisation team and naming of the buyer was put off for an undetermined period. The winner of the tender will probably be announced on May 8 or 9, 2003.

Having in mind the delicate situation, the OTP managers pointed out that their visit to Sofia was aimed at disproving the frame-ups against the Hungarian bank, not at influencing the seller's decision. During their short stay in Sofia, Sandor Csanyi and his deputies took pains to refute the two main allegation against OTP, namely that OTP was owned by off-shore companies and that it did not have enough money to buy Banka DSK. Bulgaria is the first country to bring about the issue about OTP's shareholders structure, Csanyi said. A total of 90 pct of the bank's shares are traded on the Budapest and Luxemburg stock exchanges, which makes the banks ownership structure transparent as It is constantly being monitored by the supervision bodies in these countries, Csanyi added. The security of the bank's small shareholders is guaranteed by some restrictions set in the bank's statutes, which make the setting up of a hidden control of connected shareholders impossible. None of the OTP shareholders is allowed to hold more than 10 pct in the bank. Rules are even stricter for foreign companies as they cannot hold more than 5.0 pct in OTP. According to data announced by Csanyi, OTP is currently 78.8 pct owned by foreign companies, mainly investment banks and portfolio investors. Hungarian companies and individuals hold the rest of the bank's shares and the stake of the bank's management is under 1.0 pct.

OTP officials also denied allegations that the bank did not have enough money to pay the price it offered for Banka DSK. OTP's own capital stood at 948 mln euro at the end of 2002. Currently, OTP's capital adequacy stands a 13.42 pct and it will fall to 11 pct after the purchase of Banka DSK, which is far above the minimum 8.0 pct required by the Basel standards. Three days before the visit to Sofia, OTP shareholders backed the management's motion not to pay dividend for 2002. The bank's shareholders voted to allocate 10 pct of OTP's 2002 net profit of $241.8 mln to reserves and to retain the rest of the sum. Sandor Csanyi told the shareholders that the bank did not plan to pay a dividend even if failed to buy Banka DSK, since OTP was also taking part in a tender for Hungarian Postabank.

OTP plans investments of some 600 mln Bulgarian levs in the restructuring of Banka DSK over the next five years. The bank will allocate some 200 mln levs to improve Banka DSK's infrastructure and the rest will be spent on renewing the bank's network of branches and introducing up-to-date technology. OTP said it was ready to launch all banking services currently supported by the bank including e-banking and mobile phone banking.

OTP confirmed that it had given up all conditions it had set in its offer. Rumours had it that one of the conditions was concerning the necessary 10 pct guarantee required by BCC. The guarantee of some 31 mln euro will be blocked in a special bank account of the seller for a period of 90 days and OTP will lose it in case it fails to get all necessary permits of the supervision bodies in Hungary and Bulgaria. Initially, the Hungarian bank was against this requirement, saying that the period was coinciding with the summer holidays and that the deal could fail, but later it accepted the BCC requirement. OTP has also accepted the BCC proposal about the guarantees on the deal. One of the preconditions for the possible buyers of Banka DSK was that the guarantee should not exceed 25 pct of the price offered. It is still not clear how much of the money will be kept in the escrow account, according to OTP. The Hungarian bank has also accepted the level of the additional state guarantee, which will be activated in case Banka DSK suffers damages from contracts signed in the past. In fact the Hungarian bank has accepted all conditions of the BCC and logically it expects to be invited to sign the contract.

($=1.71 Bulgarian levs)