Deposits are the cheapest resource

Last update: 22.09.2009 06:00

All of us would probably agree that an effective money management should be taken for granted and there is no need for anyone to give or seek any special credit or praise for that. The same holds true for a government-planned project under which the companies doing business on behalf of the state are expected to deposit a portion of their funds with the state-controlled Slovak Guarantee and Development Bank (SZRB). Why? The reasons are logical, hence self-evident, not only in terms of ensuring a more efficient financial support to small and medium-size enterprises (which is what the bank was established for), but also in order to contribute towards a more economical government debt management.

To finance the projects of its clients – who never ranked amongst the major clients of commercial banks – the SZRB nowadays uses solely its own resources and foreign credit lines. Unlike other banks, it has no deposits which it could use as a source of financing, i.e. the SZRB is lacking what a banker of one of the largest banks in Slovakia called prior to the restructuring of the country’s banking sector back in the 1990s “the most precious thing that a bank has”. Naturally, the deposits are the cheapest source of financing, surely less expensive than foreign lines of credit which pump up their margins at the time of a global economic downturn. Of course, in terms of the timing of deposits and loans provided by the SZRB, the deposits will not represent the primary source of financing but rather a complementary source which is unlikely to exceed 20% of the total volume of deposits; they will nevertheless enable the bank to support more businesses, resulting in a higher number of new jobs. These deposits may be used as a an important instrument in the bank’s operations in government debt management (in cooperation with the Debt and Liquidity Management Agency) because the state is naturally responsible for the efficient management of the government debt and for any contribution to that end. And again, the fact that state-controlled companies should not generate losses in achieving this purpose is also natural.

The Slovak government provided considerable stimuli to the Slovak banking sector that helped the banks to survive probably the worst times of the present crisis. Let’s recall, for example, the 100-percent guarantees for bank deposits, the fast bank guarantee programme under which the SZRB guarantees up to 55% of the client’s credit granted by a commercial bank, or the currently prepared project for resolving a group of delinquent mortgage loans and a planned state bonus to the loans for the newlywed. In light of the above, I hope that all the allegations based on which the aforementioned project is an action against banks stem from the misunderstanding of its purpose rather than from cheap populism.

František Palko
State Secretary of the Ministry of Finance of the Slovak Republic