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Central Banker: Too Much Formalism in Takeover Approvals (adds)

Ljubljana, 26 January (STA) - Central bank governor Marko Kranjec was critical of what he sees as an overly formalistic approach to acquisition approval in the real sector, as he appeared before the parliamentary commission inquiring into contentious management buyouts on Wednesday.

He believes that economic consequences of a takeover are not examined in approval process. "We rely too much on formalism and too little on content in these proceedings," Kranjec told deputies.

Banka Slovenije decides on acquisitions in financial institutions based on the banking act in terms of content, while the other regulators judge on takeovers in the real sector only from formal aspects, he said.

"Takeover legislation is formally appropriate, but there has never been a substantive examination of the consequences of a takeover," the governor said.

He was invited to a hearing after the head of the Securities Market Agency Damjan Zugelj told the commission the central bank shared part of the blame for contentious MBOs in that it failed to exercise proper oversight.

Kranjec explained that Banka Slovenije had called on the securities market watchdog to substantiate the claims about the central bank's failure in the matter, as the evidence would help it to take measures.

However, the agency's answer was that it was not obligated to answer questions from the central bank, because it was an independent body.

Zugelj said in a response that Kranjec should resign because he was "deceiving the public and speaking untruthfully", and called on the National Assembly to dismiss the governor if he failed to resign himself.

He said that Kranjec was not acquainted with the takeover legislation, referring to the governor's statement that economic consequences of a takeover should also be examined.

Zugelj added that Kranjec should not use his authority and the authority of the institution he heads to excuse the behaviour of parties which had found themselves in proceedings launched by the watchdog.

He also rejected as a lie the statement that the agency is not obligated to answer questions from the central bank to substantiate the claims about the central bank's failure in the matter.

According to Zugelj, the agency has answered the request from Banka Slovenije and sent it a list of MBOs for which the acquirers presented bank guarantees, concrete data on loan contracts, borrowers and creditors and the public statement by Kranjec saying that the central bank had failed to act resolutely enough.

Meanwhile, the central bank issued several decisions and measures against banks that approved loans too fast and banks in general between 2006 and 2009, Kranjec said, listing ten letters addressed to banks with a view to securing stability of financial institutions.

The central bank can apply between 200 and 400 measures against banks financing takeovers. It issues them daily in the form of recommendations, demands, warnings and orders. In November, 287 such measures were open, most of them concerning usual financing, but some also takeovers, Kranjec said.

The number of measures against banks is dropping by the year, which Kranjec attributed to lower volume of financing and greater fulfillment of the central bank's requirements.

"We have taken appropriate measures against banks and have prevented individual banks from having problems similar to some foreign banks that had to be bailed out."

Kranjec underscored that the central bank could not decide on financing and other transactions by banks beforehand, but only once the deals between banks and their clients were done.

The governor believes the central bank did its job in takeover approval process while allowing the possibility that more could have been done in some cases. He was much more critical of managements and supervisors at banks, who "did not do their job in many cases".

Regulators meet annually at the Finance Ministry but not once has a question been raised what Banka Slovenije thought about a certain takeover, Kranjec said, adding though that the Securities Market Agency was not obligated to ask such opinion because the central bank's job began once such a takeover was financed by banks.

The central bank has compiled a list of 68 companies and their loans. In 2006 the total amount of loans was EUR 1.8bn, which rose to EUR 2.6bn in 2007 and dropped to EUR 1.7bn in 2008 and EUR 1.6bn in 2009.

The figures include loans for working capital, investment and acquisitions. "Exposure remains substantial, but is decreasing. Banks will probably still have to make some more writedowns and in 2011 we expect the portfolio to be cleansed properly."

Banka Slovenije classifies loans into five classes, from those which are repaid on time, to those whose payment is one year overdue. Kranjec said that loans that are strongly overdue were on the increase and now represented 3.2% of all loans.

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