Parliamentary commission critical of sale of IPB

04-07-2001

When allegations surfaced in the Czech press last June that IPB bank had billions of Czech crowns in bad debts, and that it risked going under, this started a run on the bank. In mid-June, the government introduced forced administration in IPB, and within a few days sold the bank to CSOB, one of the country's largest banks.

In the political storm that followed the sale of IPB, the Lower House of Parliament set up a commission to investigate the deal. On Tuesday, the commission released its report, in which it says that the sale of IPB was not transparent, and cost the state tens of billions of crowns, while CSOB made a large profit from the deal. Finance Minister Jiri Rusnok has estimated the cost of paying off IPB's bad loans at up to 95 billion Czech crowns, or roughly 2.7 billion US dollars. His predecessor, Pavel Mertlik, the man the commission blames for what it calls a bad deal, says that the only other alternative to selling IPB would have been far more costly:

Former Finance Minister Pavel MertlikFormer Finance Minister Pavel Mertlik "The other option was to take away the bank's license, to close the business and liquidate it. According to our estimates, in direct outlays from the state budget, this would have cost something like two hundred billion Czech crowns, so it would definitely have been a much more costly solution, compared to the one that was chosen. Apart from that, the whole financial and monetary would perhaps not have collapsed, but would have been shocked by the bank's collapse."

According to economic analyst Jan Sykora of Wood & Company, the Social Democrat government indeed had little choice at the time, and that letting IPB collapse would have had dire consequences for the Czech financial sector as a whole:

"If I look at what the other option could have been, and that would be to let IPB go bankrupt. I think this would have had a tremendously negative impact on the overall financial sector and it would clearly have put a lot of depositors in jeopardy. So in that particular sense, the government didn't have much of an option."

After the report was released on Tuesday, the main opposition Civic Democrats called for a criminal investigation into how the sale of IPB was handled. But economic analyst Jan Sykora believes that more should have been done much earlier to prevent IPB accumulating bad loans in the first place:

"What I regret is that the government didn't move much earlier, as early as the mid-1990s, when it was clear that something was going on the bank. What I think could have happened then was that there was a possibility to sell the bank to perhaps another buyer, or receive a higher price. Or, prevent the bank from accumulating more bad loans, or make sure that the losses on the balance sheet, or the disappearance of the balance sheet would be lower."

04-07-2001