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Czech banks seen

candidates for

investment grade

NEW YORK: Standard and Poor's has high praise for Czech banks for the important roles they play in the economy, and raised the possibility of assigning investment grade ratings to the banks.

In a teleconference discussion, S&P analyst Dan Martin said Czech banks, while facing the same "transition risk" as their counterparts in Poland and Hungary, have some unique advantages.

- The Czech Republic has a Single A rating with stable outlook. It is a member of the Organization for Economic Cooperation and Development (OECD) and an associate member of the European Union.

- A high level of financial intermediation in the Czech Republic is similar to that in Western European banks.

- Czech banks are highly concentrated as four large banks control about two-thirds of bank assets in the system. The trend is towards even greater concentration in the face of potential competition from foreign banks.

- The control of investment funds gives banks clout in the privatization process.

- Relative level of transparency.

But Martin also pointed out that Czech banks, while heavily state-owned, cannot be assumed to be fully backed by the A-rated sovereign credit.

The banks' involvement in corporate governance through investment funds also raised questions about future bankruptcy and restructuring decisions, he said.

In the same teleconference, analyst Tanya Azarchs said Polish banks were not in a state to benefit from Poland's BBB-minus investment status.

Poland is "underbanked," as the banks are not performing a high level of intermediation in the economic life, she said.

In contrast, Hungary is "overbanked," said analyst John Gibling, especially in the corporate banking sector.-Reuter