Czech Export Bank focuses on the East

The crisis that swept through Europe by the end of 2008 finished off businesses that were already on shaky ground, but it also killed expansion plans for healthy companies suddenly faced with banks that all but froze lending. The Czech Republic itself had relatively healthy finances, but all of the major banks are owned by foreign parent companies that pulled back operations across the board.

The Czech Export Bank (ČEB), a state-owned entity established to support exporters, in fact increased its activities during the crisis as a stimulus measure, and Interim Director Michal Bakajsa said he doesn't expect the ČEB's activities to peak until 2012 or 2013, at which point he believes commercial banks will retake a larger role. Because state support and subsidies, in this case advantageous loans, are disallowed for exporters who do business in the EU, the ČEB's focus lies east of Prague, especially in Russia, and Bakajsa told The Prague Post he'd like to see Czech businesses increase activities in Latin America.

The Prague Post: How much longer do you expect to be interim director?

Michal Bakajsa: That's a good question. I'd like to know the answer! There is no certain date, but according to the shareholders, it seems there will be a final decision made by the end of the year.

TPP: You yourself joined the bank board in February 2009, which was certainly an interesting time as the credit crisis had just begun to sink in. What was that like?

MB: We began to in fact increase our activity and balance sheet, because our activities are and were, let's say, anti-crisis. We faced a drop in demand on one side, and on the other side, there was a credit crunch that hit all of Europe, so demand for our services from foreign buyers of Czech goods and services had been increasing during this crisis. You can say it's proof of the necessity of an institution like the ČEB during a crisis, especially because lending from traditional institutions becomes much more difficult.

TPP: Since becoming interim director in September, what changes have you implemented? What direction do you want the ČEB to go in?

MB: As an interim director, it's difficult to make any really significant changes. One of my goals is to improve our relations with the media, which I didn't think was as positive as it could be. I did not see any real willingness from our previous director to talk to the media and journalists, and as a result, there was a lot of incorrect information being reported, primarily about the bank's portfolio. Secondly, we have been increasing our activity 20 percent to 30 percent each year, and part of my role is to attract new customers, both Czech exporters and foreign clients. One of my personal priorities is to grow the cooperation between the ČEB and commercial banks.

TPP: What do you believe was misinformation about the bank's portfolio?

MB: Many articles stated that a huge chunk of our transactions were unpaid. [Corruption complaints from ČEB employees delivered in 2009 to then-Prime Minister Jan Fischer alleged that the bank had hundreds of millions of crowns in unpaid debts that were given to companies connected to ČEB's director at the time, Lubomír Pokorný, who resigned in late August 2010, The Prague Post reported Sept. 15 in "Czech Export Bank moves on."] In fact, our portfolio only had 0.3 percent in bad loans, or unpaid debts. We had some other transactions that we had to reclassify; we had to change the conditions because some of our customers were hit hard by the crisis, so we changed the repayment schedules. We understand that situation. Most of them were long-term clients, and we changed the conditions based on the rules that every bank has to follow according to the Czech National Bank. It doesn't mean they are bad loans, and it didn't have a negative impact on the financial situation of the ČEB.

TPP: When do you expect the ČEB's activities will return to pre-crisis levels?

MB: We have a strategy that forecasts our activity to peak in 2012 or 2013. When we're satisfied that commercial banks have become much more active again on the market, we'll decrease our activities. We're planning to increase cooperation between the ČEB and commercial banks; this is something we've already discussed with the Czech Banking Association and our shareholders, mainly the Industry and Trade Ministry. We would like to be able to take on much larger projects in cooperation with the commercial banks in terms of creating the loan terms and structure and financing. Eventually, we'll decrease our activities as we see increasing activities of the commercial banks on those projects.

TPP: Can you point to an example of this sort of cooperation between the ČEB and commercial banks?

MB: We already announced one large transaction involving a metallurgical company in Russia, ... a private company listed on the London Stock Exchange. Together with five other commercial banks, we helped finance a project worth a total of 400 million euros. We were able to quickly finance the first part ourselves, worth 150 million euros, and the second phase of the project was prepared together with the commercial banks. It allows us to share the risk, and we hope banks will increasingly use more of their funds while there is less of a demand on the state budget from us.

TPP: The ČEB's main goal is to support exporters. Can you explain your activities on the other side, with foreign companies?

MB: Our role is to support and promote exports from the Czech Republic, so of course our main customers are Czech exporters. But their financing is linked also to the risk of their commercial partners, the ones importing and buying the goods and services. We provide loans also to those companies so that their partnerships with Czech exporters can continue.

TPP: A trade delegation from the ČEB was in Russia this month, coinciding with President Václav Klaus' personal visit there. Is Russia one of your target markets?

MB: Eighty-two percent of Czech exports are to countries in the European Union, but our activities in the EU are close to zero. According to EU and OECD rules, we cannot insure projects in the EU. Our focus is primarily east of Prague, on Russia, CIS countries and Southeast Asia. We are also looking at building up what was historically a successful market in Latin America. Czech exporters were successful in Latin America, but after the revolution, we changed our focus to EU countries, so we're trying to come back to those markets.

Claire Compton can be reached at
ccompton@praguepost.com