Research guide to banking services in eastern Europe
| The Slovak capital markets have made rapid progress since their inception. The markets' organisational and legislative frameworks were laid down over a relatively short period from 1990 to 1993. The markets are organized by two institutions p; the Bratislava Stock Exchange and the RM-System p; with the Ministry of Finance of the Slovak Republic acting as the state supervisory body. Securities ownership can be registered by a common registration centre p; the Securities Centre of the Slovak Republic. The traded volume of securities has grown steadily, reaching $1.98 billion in 1995. The bond market forms a major part of the Slovak capital markets. The current value of outstanding Slovak bond issuance is $2.470 billion. This total is made up of government bonds ($1.999 billion), corporate bonds ($273 million), bank bonds ($182 million) and municipal bonds ($16 million). Bonds were first issued in 1990 and issuance has increased steadily ever since. In 1993, total bond issuance amounted to $130 million, rising to $313 million in 1994, and reaching $1.645 billion in 1995. Trading volumes in the secondary market, where all deals are traded on the Bratislava Stock Exchange, have also increased. In 1993, $2.6 million worth of bonds were traded, some $28.8 million in 1994, and $68.5 million in 1995. The data for the primary and secondary bond markets make even more impressive reading if compared to activity in the medium and long-term loan markets in the Slovak Republic. Out of a total of $5.5 billion of medium and long-term loans granted to Slovak entities, just $180 million of new loans were approved in the first nine months of 1995. If the volume of new loan approvals in 1995 is compared with the volume of corporate bond issuance alone, one can argue that the Slovak capital markets have begun to achieve one of the fundamental aims p; acting as an alternative source of business financing. This argument is further supported by a comparison with the total volume of new issuance, including government bonds issues p; in 1995 the Slovak capital markets succeeded in placing issues worth a total of $1.6 billion. This means that in 1995 the capital markets became the crucial source of financing for Slovak businesses. The increased corporate interest in the alternative funding opportunities offered by the bond markets is also due to interest rate developments in the loan market and the returns offered by bonds. This can be seen from the following charts. Chart 1 shows developments in the average interest rates on medium-term loans compared to the return on corporate bonds for the last three years. Chart 2 represents a comparison between the return on government bonds in the primary market and the discount rate set by the National Bank of Slovakia from 1992 onwards. Because of high Slovak interest rate levels and the stability of the Slovak crown/US dollar exchange rate, Slovak bond issues are also attracting the attention of foreign investors. Liquidity levels vary between the primary and the secondary bond markets. There are no placement problems in the primary market, indeed, there is felt to be a certain lack of issuance. The secondary bond market is less liquid p; due in part to the lack of primary bond market offerings but also due to the fact that most investors prefer to hold bonds to maturity rather than resell them. Nevertheless, since February 1996 activity in the secondary market has picked up. The continuing shortage of bond deals in the secondary market has created the right conditions for successful offerings in the new issues market, in particular for issues from those companies which are financially sound and enjoy good growth prospects. VÚB a.s. has been one of the most active banks in the Slovak capital markets since their launch, participating in both the primary and secondary bond market sectors. After an break of more than 40 years VÚB became the first Slovak bank to launch a bond issue in its own name, offering $16.81 million worth of bonds which were subject to active trading. Despite growing competition among Slovak and foreign financial institutions, VÚB has maintained its dominant position in the primary and the secondary bond markets, as can be seen from the following data. Total bond issuance in 1993 was $130.26 million, of which $111.77 million were government bonds, $10.09 million corporate bonds, $5.04 million bank bonds and $3.36 million municipal bonds. Half of the total corporate bond issues were prepared and placed in the primary market by VÚB. Total bond issuance in 1994 was $312.88 million. Government bonds accounted for $268.33 million of the total and corporate bonds for $28.58 million, of which 41.2 per cent were prepared and placed in the primary market by VÚB. Bank bond issues totalled $11.77 million and municipal bonds $4.20 million. Total bond issuance in 1995 was $1.645 billion. Government bonds issues amounted to $1.283 billion and corporate bonds to $215.20 million, of which 25.8 per cent were prepared and placed on the primary market by VÚB. Bank bond issuance in 1995 reached $137.86 million, 36.6 per cent of which were VÚB. bonds. Municipal bond issues totalled $8.24 million. The upward trend in bond issuance has continued in 1996. VÚB issued $33.62 million worth of bonds in February 1996, some of which were successfully placed abroad. VÚB also has a significant share of the secondary bond market, participating in 21.4 % of the total bond trades in 1994 representing some 66.6 % of the number of deals concluded. In 1995, VÚB took part in 31.3 % of the total bond deals. The bank also provides safe custody services for foreign investors. At the end of 1995 and during the first months of 1996 there has also been a revival in the Slovak equity market. The volumes of shares traded and share prices have increased significantly, leading to a rise in the official stock exchange SAX share index (see chart opposite). Foreign investors are allowed to purchase and sell securities denominated in Slovak crowns under the provisions of the country's Foreign Exchange Act (with the exception of shares in banking institutions where permission must be obtained from the National Bank of Slovakia) and are increasingly keen to do so. Some of the Slovak banks have started to provide a full range of safe custody services for foreign investors p; ranging from the opening of an account with the Securities Centre and local and foreign currency bank accounts, through to the settlement of securities deals, collection and taxation of the income on securities, right up to the exercising of shareholders' rights. Among these is VÚB a.s. p; the largest Slovak bank, one of the founders of the Prague and the Bratislava stock exchanges, and a dominant financial institution in the Slovak capital markets which provides sophisticated investment banking and financial consultancy services for both its local and foreign clients. Another positive development is the fact that foreign investors in Slovakia have also started to act as portfolio investors, participating in stock capital increases in Slovak companies as well as in the Slovak primary bond markets where there has been an ever increasing volume of issuance. Foreign investor interest is expected to continue to grow in 1996. Positive investor sentiment towards the Slovak Republic is based on the country's investment-grade Standard & Poor's (BB+) and Moody's (Baa3) credit rating, a highly liberalized capital market from a legislative point of view, and the benefits offered to foreign investors with regarding to the taxation of the income on their investments. Chart 2: Returns on Government Bonds versus the Discount Rate of the National Bank of Slovakia Liquidity levels vary between the primary and the secondary bond markets. There are no placement problems in the primary market, indeed, there is felt to be a certain lack of issuance. The secondary bond market is less liquid p; due in part to the lack of primary bond market offerings but also due to the fact that most investors prefer to hold bonds to maturity rather than resell them. Nevertheless, since February 1996 activity in the secondary market has picked up. The continuing shortage of bond deals in the secondary market has created the right conditions for successful offerings in the new issues market, in particular for issues from those companies which are financially sound and enjoy good growth prospects. VÚB a.s. has been one of the most active banks in the Slovak capital markets since their launch, participating in both the primary and secondary bond market sectors. After an break of more than 40 years VÚB became the first Slovak bank to launch a bond issue in its own name, offering $16.81 million worth of bonds which were subject to active trading. Despite growing competition among Slovak and foreign financial institutions, VÚB has maintained its dominant position in the primary and the secondary bond markets, as can be seen from the following data. Total bond issuance in 1993 was $130.26 million, of which $111.77 million were government bonds, $10.09 million corporate bonds, $5.04 million bank bonds and $3.36 million municipal bonds. Half of the total corporate bond issues were prepared and placed in the primary market by VÚB. Total bond issuance in 1994 was $312.88 million. Government bonds accounted for $268.33 million of the total and corporate bonds for $28.58 million, of which 41.2 per cent were prepared and placed in the primary market by VÚB. Bank bond issues totalled $11.77 million and municipal bonds $4.20 million. Total bond issuance in 1995 was $1.644 billion. Government bonds issues amounted to $1.283 billion and corporate bonds to $215.20 million, of which 25.8 per cent were prepared and placed on the primary market by VÚB. Bank bond issuance in 1995 reached $137.86 million, 36.6 per cent of which were VÚB. bonds. Municipal bond issues totalled $8.24 million. The upward trend in bond issuance has continued in 1996. VÚB issued $33.62 million worth of bonds in February 1996, some of which were successfully placed abroad. VÚB also has a significant share of the secondary bond market, participating in 21.4 % of the total bond trades in 1994 representing some 66.6 % of the number of deals concluded. In 1995, VÚB took part in 31.3 % of the total bond deals. The bank is also involved in the Slovak securities market and provides safe custody services for foreign investors. At the end of 1995 and during the first months of 1996 there has also been a revival in the Slovak equity market. The volumes of shares traded and share prices have increased significantly, leading to a rise in the official stock exchange SAX share index (Chart 3). Chart 3: Development in the SAX Indices Foreign investors are allowed to purchase and sell securities denominated in Slovak crowns under the provisions of the country's Foreign Exchange Act (with the exception of shares in banking institutions where permission must be obtained by the National Bank of Slovakia) and are increasingly keen to do so. Some of the Slovak banks have started to provide a full range of safe custody services for foreign investors p; ranging from the opening of an account with the Securities Centre and local and foreign currency bank accounts, through to the settlement of securities deals, collection and taxation of the income on securities, right up to the exercising of shareholders' rights. Among these is VÚB a.s. p; the largest Slovak bank, one of the founders of the Prague and the Bratislava stock exchanges, and a dominant financial institution in the Slovak capital markets which provides sophisticated investment banking and financial consultancy services for both its local and foreign clients. Another positive development is the fact that foreign investors in Slovakia have also started to act as portfolio investors, participating in stock capital increases in Slovak companies as well as in the Slovak primary bond markets where there has been an ever increasing volume of issuance. Foreign investor interest is expected to continue to grow in 1996. Positive investor sentiment towards the Slovak Republic is based on the country's investment-grade Standard & Poor's (BB+) and Moody's (Baa3) credit ratings, a highly liberalised capital market from a legislative point of view, and the benefits offered to foreign investors with regarding to the taxation of the income on their investments. Contact: V_eobecná úverová banka, a.s., Námestie SNP 19, 818 56 Bratislava, Slovak Republic tel.: (0042 7) 515 1112, telex: (0666) 93347, 93297, fax: (0042 7) 321 483 Investment banking division Vra_da _ubo_ General Manager Tel. (0042 7) 363 747 Svítek Ivan Deputy General Manager Tel. (0042 7) 367 561 Lazovy Juraj Head of Department Capital Markets Tel. (0042 7) 367 562 Zemková Zita Head of Department Financial and Investment Consulting Tel. (0042 7) 367 563 Polavková Katarína Head of Department Capital Investments Tel. (0042 7) 326 816 Corporate bonds returns / interest rates: Government bonds returns / discount rates: Development in the SAX Index: |