Slovenia Wants Foreign Investors to Boost Bank Capital

Slovenia plans to sell stakes in state-controlled banks to foreign investors to raise capital at the institutions and reduce government spending, Finance Minister Janez Sustersic said.

“Our plan is to recapitalize banks and look for private investors that would be ready to step in, so the state can keep a controlling stake,” Sustersic said in a phone interview today. “Banks still represent a problem we haven’t solved.”

Slovenian state-owned lenders, including the largest Nova Ljubljanska Banka d.d., reported record losses last year as more and more companies, especially from the ailing construction industry, went bankrupt, forcing lenders to set aside cash to cover bad loans. The trend may worsen as the export-driven economy enters its second recession in three years as demand slumps because of austerity measures at home and across Europe.

The worsening debt crisis in Europe and the shrinking Slovenian economy are affecting business at the banks, which should reduce dependence on funding from the European Central Bank, the Slovenian central bank said on May 14.

Nova Ljubljanska, which borrowed 1.2 billion euros ($1.5 billion) from the ECB to repay maturing debt, wants to raise 400 million euros in equity capital by the end of June to improve its core Tier 1 ratio to above 9 percent. NLB continued to lose money in the first quarter, when it reported 34.6 million-euros loss on increased loan provisions.

Solution for Banks

“We will also have to find a solution for banks’ liabilities and not only for bad-loan provisions,” Sustersic said. “It’s about non-bank investments such as the stake in Mercator, because the bank isn’t the best option to manage such a holding. We will do that on a case-by-case basis to see how many of these investments can be sold.”

Slovenian banks own stakes in companies including in the store chain Mercator Poslovni Sistem d.d. after they seized the holdings because their owners were unable to repay debt. NLB and other investors in Mercator failed to sell a majority of the Slovenian retailer to its Croatian competitor Agrokor d.d. after opposition from the previous Mercator management and Slovenian officials who claimed the sale would hurt the country’s food business.

Slovenia embarked on savings measures to lower its debt load, which more than doubled since 2007, when the country adopted the European single currency. Sustersic has said the government won’t provide funding to NLB after aid to the lender last year widened the budget deficit to 6.4 percent of gross domestic product.

“Slovenian banks in the past were recapitalized by a required minimum and the balance sheets were cleaned by a minimum and the similar story happened in each three-month period,” Sustersic said.

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