The Slovenia Times

Next step in NLB sale talks expected

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The European Commission launched an investigation in late January after Slovenia failed to sell a 50% stake in the state-owned bank by the end of 2017, as agreed in exchange for the clearance of state aid for banks in late-2013.

Slovenia is trying to defer the sale due to unresolved issues related to the Yugoslav-era foreign-currency deposits in the Croatian branch of LB, the predecessor of NLB.

Slovenia has proposed other solutions, but the European Commission was not completely satisfied with any of them. Vraničar Erman and Vestager will try to bridge the differences tomorrow.

During ongoing talks between the Commission and Slovenia, the media reported that NLB had paid compensation in a court case it lost against Zagreb banks that took over LB's debt following the disintegration of Yugoslavia. This was only one of several cases running against NLB in Croatia.

The move was controversial because Slovenia's official position is that the Yugoslav-era deposits fall under the succession agreement signed by the successors to Yugoslavia.

Croatia also admitted to this in the 2013 Mokrice agreement but has since changed its mind, declaring this a dispute among banks and making it possible for Croatian banks to sue NLB.

Croatian courts have ruled in four cases, with NLB losing three lawsuits. In one case, compensation was collected from a Croatia-based affiliate of NLB, according to media reports, while in another case NLB paid the compensation willingly. The third case NLB lost is not yet closed, as the bank has lodged an appeal.

NLB has not been able to operate in Croatia due to the deposits issues. However, the bank has a leasing company, a property arm, and a fund in Croatia which is used to pay out pensions to Croatian residents who worked in Slovenia. This makes it possible for Croatia to collect the compensation money.

Unofficially, the bank had turned to top government officials for instructions before deciding to pay the compensation, but did not receive an answer.

"I don't understand why NLB management wanted instructions from the government. This is not the government's job," Foreign Minister Karl Erjavec said on Friday.

"NLB has a board that needs to act responsibly, and a strong legal department that knows these issues better than any of the Succession Committee members," said the foreign minister, himself also a member of the mentioned coordination committee on the issues of succession.

The committee "has always held the position that no final decision by a Croatian court should be implemented because they are not legal," added the foreign minister.

Prime Minister Miro Cerar said on Friday that the government had only been informally notified of the compensation payment. It responded with "a very clear position" that payment of compensation based on illegal Croatian rulings must not become regular practice and should be stopped.

Cerar has said that the government needs to find a solution to secure NLB if the bank fails to prevent Croatia from collecting the compensations.

"The government has the bank's back and we are intensively looking for adequate solutions to find the right path as part of succession," said the prime minister.

Apart from having Croatia seize a part of its assets in Croatia, NLB might face a tough legal dilemma. Refusing to pay the compensation might lead to an investigation of the European Central Bank, which could conceivably strip NLB of its banking licence, according to several media.

Erjavec doubts that "anybody will be held accountable for failing to implement an illegal court decision".

Slovenia's central bank has said that the court rulings could affect NLB's operations and its capital adequacy. Some believe that the bank should form reserves in the face of the compensation claims, which in turn would have to be followed by a cap on its loan activity.

The bank might face an additional problem. If Slovenia fails to negotiate a change in obligations stemming from the state aid, the bank may face sanctions, potentially including the return of the bail-out money.

Slovenia is trying to persuade the Commission to allow it to privatise the bank by the end of 2019 and to appoint a blind trustee in the meantime.

The Commission has been repeating it is essential to treat all member states equally and that it needed to make sure that NLB will be able to survive in the future after having received state aid. To achieve this, it is essential that the state sells its share in the bank.

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