Business News

Stress Tests: Govt to Inject EUR 3.01BN into State-Owned Banks (II)

Ljubljana, 12 December (STA) - Slovenia has earmarked EUR 3.01bn for the recapitalisation of NLB, NKBM and Abanka Vipa, the country's three largest banks, a figure that allows Slovenia to restructure its banking system without requiring international financial aid.

The capital injection at the three banks will be carried out after approval from the European Commission, which is expected in the coming days, Finance Minister Uroš Čufer told the press in Ljubljana on Thursday.

Banka Slovenije Governor Boštjan Jazbec said that after the recapitalisation the core Tier 1 capital of Slovenia's two biggest banks, NLB and NKBM, will stand at 15% and 16.8%, respectively, making them among the better capitalised banks in the eurozone.

NLB, NKBM and Abanka will be recapitalised with EUR 2.1bn in cash, mostly with the conversion of existing state deposits into equity, and EUR 905m stemming from recent bond issues.

Another EUR 441m will come from outstanding junior bonds, whose holders will lose their entire investments, according to Jazbec.

NLB accounts for half of the total recapitalisation costs, EUR 1.55bn, with EUR 870m allocated for NKBM and EUR 591m for Abanka.

After approval from the European Commission the three banks will transfer their non-performing loans with a transaction value of EUR 1.6bn to the Bank Assets Management Company (BAMC), the bad bank, which will give it EUR 4.5bn-worth of assets.

The BACM received a EUR 200m capital injection today to allow it so start functioning.

NLB and NKBM will start transferring their non-performing loans immediately, while Abanka needs to draw up a restructuring plan and submit it for approval to the European Commission, Jazbec explained.

The remaining five banks which have been subject to EU-mandated testing - two Slovenia and three foreign-owned - will be asked by the central bank to buttress their capital base within six months. They need just over EUR 1bn, according to the stress tests.

The total capital shortfall of the eight banks is estimated at just under EUR 4.8bn according to the worst-case scenario applied in the stress tests.

After the operation, Slovenia's gross public debt will rise to EUR 75.6% of GDP, whereby the government will still have available EUR 2.5bn in cash for further measures, Čufer explained.

The measures are designed to ensure bank capital adequacy through 2015 under the worst-case scenario, which factors in potential losses in the next two years, Jazbec said.

The bailout plan involves the commitment that NLB and NKBM are privatised, with NKBM to be completely sold off by 2016 and NLB privatised until 2017, whereby the state plans to retain 25% plus one share in the bank.

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