The Czech Consolidation Agency
In this weeks Economics Report we take a look at one of the most important government agencies which has been working to restructure the Czech economy for more then a decade. The Czech Consolidation Agency, or CKA, has a mission to reduce the volume of loss making and other assets of the companies it takes on for restructuring and to carry this out in the shortest possible time and at the lowest possible cost. The agency has been vital in ensuring the privatisation of a number of formally state owned companies.
"The Czech Consolidation Agency (CKA) is a central institute administering problematic and low quality assets of the Czech Republic. CKA has been constituted as a non-banking institution, not entitled to provide loans or accept deposits. It's main role has been established to restructure strategic companies and manage problematic assets transferred upon it from privatised banks and companies."
The Czech Consolidation Agency uses a number of different tools to restructure and revitalize firms which have been put under its control. I asked Mr. Pekarek how the restructuring of companies is carried out.
"There are a few methods how to manage CKA assets. First, the realisations and sales of receivables. The possibilities of these are individual sales, block sales, sale of ownership interest, and the sale of collaterals. Other methods how to manage assets are liquidations, lawsuits, bankruptcies, and executions. CKA also actively searches for strategic investors to selected companies."
The largest project that the Czech Consolidation Agency has been involved in was that of IPB bank. IPB was the first bank to be privatised. However, a curious situation developed when the government moved in and put the bank under forced administration. It later turned out that IPB had accumulated billions of Czech crowns in debt. Another twist to the IPB case was the government's decision to sell the bank few days later to CSOB bank, thus creating the largest bank in the Czech Republic. Mr. Pekarek explains the role that the Czech Consolidation Agency played.
"During the last two years, CKA took-over more than 100 billion Czech crowns in assets in book value from CSOB. The next big project is block sales. CKA realised in September of last year, in book value from CSOB, the biggest block sale which the total value was 1.1 billion US dollars. The book value efficiency was more than 14 percent, we also realised three smaller regional block sales."
Recently the Czech Minister of Finance stated that the Czech Consolidation Agency should be closed in 2008, three years earlier then originally forecasted. I asked Mr. Pekarek why the government would want to make such a move.
"This is nothing against our own projection. If the state and the government will not decide to transfer any new volumes of bad assets to this institution we suppose that we can solve the majority of our portfolios in two or three years. So we will try to do our best in order to finish our tasks as soon as possible."
So if the termination of the Czech Consolidation Agency is carried-out at an earlier date then originally planned then it could mean that much of the hard restructuring of the Czech economy is coming to an end. This may be true for the financial sector in the Czech Republic but if one looks at the government's recent failure to privatize a number of state owned companies, this is highly unlikely.