• NBS's Approvals
• Notification Duties
• Investment Requirements
• Prudential Standars
  • Persons with a special Relationsship to a Bank
  • Provision of Loans - Securing Obligations from loans
  • Adequacy of own Sources
  • Other Information and Notification Duties

Requirements on Business Activities of a Bank

The new Banking Act further generally defines a basic obligation of commercial banks to conduct business on a contractual basis, prudently with a minimum risk, maximum possible profit observing correctness of the relationship with its clients, shareholder of the bank, management and individual employees of the bank.

The definitions of certain terms in the manner that their contents is equal to the domestic as well as international professional banking practice and practice on financial markets are also a part of the new Banking Act. These terms are in particular ``disposal of deposit'' and ``exertion of professional care''.

NBS's Approvals

A prior approval of NBS under the consequence of invalidity is required for

(a)

acquisition or excess of share in the registered capital of bank or voting rights in bank of 5%, 10%, 20%, 33% or 50% in one or several transactions directly or by concurrent action,

(b)

merger, amalgamation or split of a bank, including merger of other legal entity with the bank or return of a banking licence, as well as decrease in the registered capital of the bank, other than decrease to cover its losses,

(c)

winding up of the bank from a different reason than under letter (b) above or for change of its legal form; in this case the bank is obliged to return a banking licence on the date stated in the decision on the prior approval of NBS,

(d)

sale of an enterprise of the bank, branch office of foreign bank or the parts thereof, and

(e)

a bank to become a subsidiary of other parent company.

Not only the legal act mentioned above is invalid, if performed without the prior approval of NBS, however also any legal act performed upon the prior approval of NBS granted on the basis of false data shall be invalid. However, the new Banking Act, in order to provide sufficient time period, stipulates that any prior approval of NBS is effective for 1 year unless a shorter period results from the decision on its granting.

Notification Duties

The Act regulates also duties of a person who wishes to dispose of its share in the registered capital of a bank or voting rights in a bank in such proportion that its share will decrease below 5%, 10%, 20%, 33% or 50%. Such person has to notify NBS in writing and in advance of such intention or the fact that the bank ceases to be its subsidiary.

The bank is obliged to notify NBS, upon NBS request, in writing and without undue delay of its shareholders and other persons which exercised voting rights at the General Assembly of the bank; the bank is also obliged to notify MF SR in writing of its shareholders upon a request.

Investment Requirements

The Act further defines requirements for investments of the bank into other legal entities which are neither banks under the new Banking Act, nor financial institutions, eventually an enterprise of auxiliary banking services. In this case, investments into the own portfolio of the bank are regulated, not investments into shares for subsequent trading on the secondary securities market.

According to these rules, a bank cannot have control over a legal entity which is not a bank under the new Banking Act, a financial institution or an enterprise of auxiliary banking services.

At the acquisition of shares in the registered capital of a legal entity which is not a bank under the Act, a financial institution or an enterprise of auxiliary banking services, the bank may not exceed

(a)

15% of own resources in one legal entity and

(b)

60% of own resources of the bank financing towards all legal entities in total.

Prudential Standars

The Act also creates a general frame of requirements for prudent performance of business activities of banks, mainly with respect to observance of adequacy of own resources, property involvement, liquidity and creation of secured foreign exchange positions.

Persons with a special Relationsship to a Bank

A bank and a branch office of foreign bank is not allowed to carry out transactions with persons having relationship to them, which would not be carried out with other clients with respect to their nature, purpose or risk. Before realisation of any transaction, the bank and the branch office of foreign bank shall be obliged to verify whether the person with whom they carry out transaction has not a special relationship to them, and provide for truthfulness of these data in a written agreement, under a sanction of invalidity of a legal act towards a client.

Provision of Loans - Securing Obligations from loans

For provision of loans or warranties to these persons a unanimous decision of the statutory body of a bank or a director of a branch office of foreign bank is necessary, adopted on the basis of written analysis of the respective transaction and financial situation of an applicant, whereas a person, to which a decision relates, is excluded from the decision-making process.

The amount of loans unsecured by a mortgage over real estate provided by a bank to its employee or a certain category of persons which have a special relationship to the bank, may not exceed the total gross income of this person for previous 24 months. The total amount of loans provided by the bank to its employees for conditions on other than on an arm's length basis may not exceed 5% of the registered capital of the bank.

The Act prohibits provision of loans, eventually securing of an obligation from loans, for any

(a)

acquisition of shares issued by the bank,

(b)

acquisition of shares issued by a person which has a qualified participation in the bank (i.e. direct or indirect share, or their sum representing at least 5% of the registered capital of a legal entity or voting rights in the legal entity, or a possibility of exercise of influence on management of this legal entity comparable to influence corresponding with this share),

(c)

acquisition of shares issued by legal entities which have control over the persons or which are controlled by the persons which have a qualified participation in the bank,

(d)

acquisition of shares issued by legal entities which are controlled by the bank,

(e)

repayment of other loan provided for any acquisition of shares under letters (a) to (d) above or for securing of obligations from such loans.

Each agreement on such transaction is sanctioned by its invalidity.

A bank or a branch office of foreign bank also may not, under a sanction of invalidity,

(i)

acquire from a person with a special relationship to it a receivable which is assumed not to be satisfied properly and in time, and

(ii)

take over an obligation from such person.

Adequacy of own Sources

The bank may neither provide a loan, nor secure obligations from the provided loan to an employee or a person which has a special relationship with the bank, if the bank does not keep the minimum 8% adequacy of own resources, or if a person with a special relationship to the bank does not notify the bank or the branch office of foreign bank of the information necessary for finding out other persons which have a special relationship to the bank or the branch office of foreign bank.

Other Information and Notification Duties

The Act stipulates an obligation of banks and branch offices of foreign bank to understandably inform in its operation premises in a written form and in Slovak language about conditions for acceptance of deposits, provision of loans and all other banking transactions and their prices, including examples, and publish in its operation premises also a written information on protection of deposits.

The bank is obliged to publish and submit to NBS an annual report within 30 days after its approval by the General Assembly of the bank. The provision of Sec. 20(3) of the Act No. 563/1991 Coll. on Accounting, as amended, shall not be thereby affected.

A bank is also obliged to publish information on its activities, information on measures for remedy and penalties which were imposed to it under the new Banking Act, information on financial ratios, information on its shareholders and structure of a consolidated unit as well as sub-consolidated unit forming a part thereof in terms of mutual relations and composition of these units, on a quarterly basis, always within 30 days after the end of the relevant quarter.

A bank and a branch offices of foreign banks is obliged to provide without undue delay NBS with information on loans provided to entrepreneurs, securing of receivables from provided loans to entrepreneurs and on obligations taken by the banks or the branch offices of foreign banks towards entrepreneurs in Slovak crowns or in foreign currency. NBS keeps a register of loans and warranties containing this information.

Banks and branch offices of foreign banks are further obliged to notify NBS in writing of an auditor approved by its Supervisory Board within 30 days from the end of the calendar year for which audit is to be carried out.

Except for documentation stated in the new Banking Act, banks and branch offices of foreign banks are obliged to keep also books of accounts in compliance with the Slovak Act on Accounting.

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