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NLB had a capital shortfall of EUR 34.2m under the worst-case scenario, while NKBM came EUR 31m short, according to data released by the European Central Bank (ECB) on Sunday.

An asset quality review was first undertaken and its results used to adjust the banks' Common Equity Tier 1 capital (CET1), a gauge of their capital cushions.

The figures were then fed into two scenarios with a variety of variables mimicking mild or severe shocks: under the baseline scenarios they had to end with a CET1 ratio of 8% in 2016, in the adverse scenario they needed 5.5%.

All three Slovenian banks satisfied the requirements of the baseline scenario but NKBM was 110 basis points short of the 5.5% target in the adverse scenario and NLB missed the target by 47 basis points. The SID export and development bank came out clean.

Given that the tests were made taking into consideration banks' balance sheets and macroeconomic scenarios as at the end of 2013, which were highly unfavourable for Slovenia on most indicators, the two banks will not require recapitalisation.

Instead, they will be able to offset the capital shortfall with retained earnings; after they were recapitalised and nationalised at the end of last year, which was followed by the transfer of non-performing loans to the bad bank, both banks have returned to profit.

"There will be no consequences for taxpayers," central bank governor Boštjan Jazbec stressed. The same message was delivered by the Finance Ministry, which said both banks had taken "appropriate measures" to improve profitability so that they are able to offset the shortfall with own funds.

The results were not unexpected given that the banks have overcome the worst but are still burdened by non-performing loans. Both were recapitalised and nationalised at the end of last year and removed a significant portion of non-performing loans off their balance sheets and transferred them onto the bad bank.

Nevertheless, the share of non-performing loans on their portfolio is still high, over 23% at NLB and almost 20% in NKBM's case, which appears to have had a major impact on the overall results of the exercise.

Accordingly, Jazbec said last year's measures were "the minimum". In order to improve banks' prospects in the long run and supply credit to companies, "ownership, operational and financial restructuring of the real sector" is needed.

Similarly, vice-governor Stanislava Zadravec Caprirolo said all efforts should be directed at corporate restructuring, which is ongoing and currently involves a third of the real sector according to central bank data.

The same point was raised by NLB chief executive Janko Medja, who noted there had been a lot of talk about corporate restructuring but insufficient action. "Companies should focus not only on operational restructuring but also financial restructuring," he said.

NKBM boss Aleš Hauc added that the results of the stress tests would have been even worse if Slovenian companies were receiving more credit given how indebted they already are.

Under the rules of the exercise, both banks will now have to submit recapitalisation plans to the ECB within two weeks. The ECB will then decide whet needs to be done and is expected to pass its final judgement on the actual capital requirements within a month.

Analysts quizzed by the STA described the results as expected.

The figures are "nothing that would require intervention from Slovenian taxpayers," Ljubljana Faculty of Economics professor Sašo Polanec told the STA.

France Arhar, president of the Bank Association and former chair of the NLB supervisory board, said he was not surprised by the overall test results though the EUR 65m capital shortfall was "somewhat of a surprise".