European Commission officials attempted to end long-standing media speculation last week that the three largest Czech banks might have to return hundreds of billions of crowns in state aid.

Contrary to international and local media reports that the country's three largest banks—Ceska Sporitelna (CS), Komercni Banka (KB) and Ceskoslovenska Obchodni Banka (CSOB) —may have to return up to Kc 300 billion ($11 billion) in aid they received prior to their privatization, Commission officials said that pre-accession aid was outside the Commission's purview. The purpose of the investigation, officials said, is to obtain a complete picture of all aid provided to Czech banks and to ensure that any post-accession aid doesn't violate EU competition rules.

The Czech banking sector crisis was the result in large part of poor lending practices of the early to mid-1990s that helped prop up ailing and failing state companies, frequently on the request of the then political elite. The total cost to the government of the bailout of 11 banks has been estimated at Kc 500 billion.

Many of those banks no longer exist. But in the case of the three largest, bankers say there was no question of allowing them to collapse. "Because the Czech banking sector is so concentrated, the shockwaves of letting one of those giants fall would have been disastrous," said one investment banker, who asked not to be named. "It would have turned this country into Albania overnight."

In accession progress reports in the late 1990s, the Commission repeatedly urged the Czechs to privatize the main banks, which the minority Social Democrat (CSSD) government of Milos Zeman did, selling CSOB to Belgian bank KBC in 1999, Sporitelna to Austria's Erste Bank in 2000 and KB to France's Societe Generale in 2001.

(PBJ 03.xi.03)