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NLB Expects to Finish Year in the Red Despite Bad Bank

Ljubljana, 21 May (STA) - Slovenia's biggest bank NLB expects to finish the year with a loss despite plans for transfer of its bad claims to a bad bank. Regardless of the transfer, the state-owned bank will still need to clean up its loan portfolio, while a capital increase is also planned for July.

NLB generated EUR 4.5m in net loss in the first three months of the year, while the group's loss amounted to EUR 0.7m.

The bank's management said on Tuesday the result was better than last year but pointed out that Q1 results were usually strongly marked by seasonal influences. This is why they expect a negative result at the end of the year.

NLB is expected to return to profit in 2014.

The bank expects the first transfer of bad claims to the bad bank to be carried out in June. In the first phase, claims worth EUR 1.3bn gross and EUR 700 net will be transferred. The difference between the two figures has already been factored in in provisions and impairments.

In total, NLB is to transfer some EUR 1.9bn in claims to the bad bank, which should happen by the end of the year, mostly before the third quarter.

In July, the country's biggest bank would then receive a capital injection in the amount of EUR 367.2m, but it remains unclear as to how the recapitalisation will be carried out.

Under one proposal, the bank's shareholders would on 11 June give the management the mandate to increase the bank's core capital by a maximum of EUR 367.2m.

For this purpose, up to EUR 44m worth of shares could be issued. Investors would be able to buy new shares either with cash or with non-cash contributions.

But the state-owned KAD and SOD funds, two biggest owners next to the state, propose that the capital increase be carried out in cash.

NLB estimates that the capital hike would raise the bank's core capital to around 9.5%.

The management reiterated today that the responsibility for the bad loans lied with those who were in charge between 2002 and 2009 and that the tackling of bad claims should have started three years ago.

As regards restructuring of companies, the bank has drawn up a list of 100 crucial companies whose claims would be restructured. The list is almost identical as the one recently drawn up by the central bank.

The management sees no major risks for the bank's liquidity in the future, but points out that a lot will depend on Slovenia's credit ratings.

They are, however, concerned by the trend of deteriorating business results before provisions and impairments. The trend, which started in 2007, continues in the first quarter of this year as well, mostly due to a drop in revenue from interests.

Before the crisis, the amount of loans that the bank has given out was too big. This growth, which continued until 2008, then led to a quick increase in the amount of bad loans, impairments and loss, the management said.

Between 2007 and 2012, the bank received a total of EUR 1bn in fresh capital.

To avoid needing any further capital increases, the bank is to undergo reorganisation in the next year and a half to two years.

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