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National Reform Programme: Top Three Banks to Transfer EUR 3.33BN on Bad Bank

Ljubljana, 10 May (STA) - The three largest Slovenian banks are to transfer a combined EUR 3.33bn worth of bad loans onto the bad bank, an operation which would reduce their portfolio of non-performing loans to 8.87% from 24.61%, according to estimates by the Slovenian central bank cited in the National Reform Programme.

The Bank Asset Management Company will take over bad loans of NLB, NKBM and Abanka Vipa in exchange for bonds backed by EUR 4bn worth of state guarantees.

Based on the results of stress tests and a review of the banks' assets, Banka Slovenije estimates the amount of non-performing loans to be transferred at EUR 3.337bn at a transfer value of EUR 1.147bn.

The banks have formed EUR 1.5bn worth of provisions and impairments for the loans to be transferred, which means the coverage is 30.7%.

The central bank estimate losses to the tune of EUR 358m and a capital shortfall of EUR 188m. The total shortage of capital in the three banks is estimated at EUR 716m.

The central bank projects that gross volume of bad loans in the three banks will be reduced from EUR 4.89bn to EUR 1.552bn. The proportion of non-performing loans will hence fall from 24.61% to EUR 8.78%.

This should bring down the gross amount of non-performing loans in the overall banking system from EUR 8.06bn to EUR 4.73bn and the share of such loans from 16.92% to 10.40%.

Considering the central bank's estimate, the government projects EUR 900m worth of recapitalisations of the banks by the end of July. Unless a private investor is found, fresh capital will be provided by thee state.

The extra capital is expected to be sufficient to cover all the risks the banks have projected for next year.

The government's goal is for first transfers of non-performing loans to the bad bank to be completed before the end of June and for the bulk of the transfers to be finalised before the end of the third quarter of the year.

The transfer is planned in several phases, starting with the transfer of claims to companies in receivership, which represent the biggest proportion of debtors.

The second phase will see a transfer of claims pledged with real estate, whose management the bad bank could hand over to the Housing Fund or some other specialised firm.

The remaining loans will be transferred in the third phase comprising claims to companies that will simultaneously undergo restructuring and debt owed by financial holdings.

Currently the paperwork and the list of claims for transfer is being drawn up for the first bank to enter the mechanism and the government is expected to take first formal decision by the end of May.

An independent auditor will be selected to oversee the transfer of individual categories of assets onto the bad bank based on real long-term economic value.

The government will submit to the European Commission a formal initiative to establish compliance with state aid rules. On receiving Brussels' approval, the bad bank will sign a contract with the bank in question and carry out the first transfer of claims.

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