Commission Approves State Aid for Five Slovenian Banks
The Commission issued its final approval to the restructuring plans for the NLB and NKBM banks, the two largest banks in the country, and provisional approval for the state aid planned for Abanka Vipa, the No.3 bank.
The Slovenian government plans to inject up to EUR 3bn in cash and bonds in the three banks to boost their capital following the findings of the comprehensive reviews conducted at the banks whose results were published last week.
The capital increases could be carried out as early as today, with central bank Banka Slovenije expected to assume temporary executive and ownership control of the banks to fast-track procedures.
The EU's executive body also issued final approval to the nearly EUR 1bn in state guarantees provided to Probanka and Factor banka, two small banks which are undergoing an orderly wind-down after failing to secure fresh capital to keep them afloat.
"Today's decisions on NLB, NKBM, Factor Banka, Probanka and Abanka will strengthen confidence in Slovenian banks," European Competition Commissioner Joaquin Almunia said as the decision was announced in Brussels.
Almunia expressed confidence that the restructuring plans drawn up by Slovenia would help restore health to the banking sector, which has been besieged by bad loans dating back to the boom years.
Echoing the sentiment of Slovenian officials, he highlighted that the rescue of banks needed to be followed by other measures to restart the Slovenian economy. "I think the situation of the banks is not the only problem that the Slovenian economy must tackle, although this is, of course, a very important element."
Slovenian Finance Minister Uroš Čufer, who attended a meeting of eurogroup ministers in Brussels on Tuesday, reiterated that the bank bailout will need to be followed by restructuring of companies in order to promote much-needed deleveraging.
In line with the decision by the Commission, a state-funded capital injection of EUR 1.56bn and a transfer of toxic loans to the Bank Asset Management Company (BAMC) worth EUR 2.3bn in nominal terms will be able to go ahead at the top bank, NLB.
The permitted capital increase at NKBM, the No. 2 bank, is valued at EUR 870m, with the bank also obtaining clearance to transfer EUR 1.15bn in toxic assets to the bad bank.
The provisional approval of state aid for Abanka envisages recapitalisation worth EUR 348m, with the bank given two months to send a full restructuring plan that is required for final approval that is also expected to include a transfer of assets to the bad bank.
Slovenia will also be able to provide EUR 236m for recapitalisation and EUR 325m in guarantees to Probanka and EUR 285m for recapitalisation and EUR 400 in guarantees to Factor banka as part of the controlled liquidation that will result in the two banks ceasing operations at the end of 2016.
European state aid rules mandate that aid to banks must be based on restructuring plans that must meet three criteria: provide for the survival of the bank, ensure suitable distribution of burdens with contributions from subordinate creditors and provide guarantees to prevent distortion of competition.
Also required is a contribution from the shareholders and holders of subordinate debt, which means that small shareholders and junior debt holders in the five banks will have their investments written off entirely.
Furthermore, Slovenia has committed to selling the two leading private banks in the restructuring plans sent to the Commission. The sale of the outright stake in NKBM is to be carried out by the end of 2016, while a 75% stake in NLB is to be sold by the end of 2017.
Slovenia had initially hoped that EU approval would come in time for the release of the results of stress tests at eight Slovenian banks last week, but the country's officials conceded in unveiling the results that this expectation had been overly optimistic.
Almunia praised cooperation with Slovenian authorities today, telling the press that work has been carried out "in a very very good mood" and that very useful contacts have been established between the sides.
"We are working very closely and in good cooperation not only on the competition side but also with my colleague [European Economic and Monetary Police Commissioner Olli] Rehn and I hope that [Slovenia] will succeed in its purpose and goals."