KBC Groep NV of Belgium won’t contribute its share in a 381 million-euro ($481 million) capital increase of Nova Ljubljanska Banka d.d. because it failed to get a European Commission approval.
The 61 million euros that was supposed to come from KBC will now be given to Slovenia’s biggest bank by state-owned pension and assets management fund Kapitalska Druzba d.d. and the restitution fund Slovenska Odskodninska Druzba d.d., the Ljubljana-based bank said today in a regulatory statement.
KBC held a 25 percent stake in NLB before the capital boost. With the transaction, Slovenia’s biggest financial services company will fulfill the requirements of the European Banking Authority to lift its core Tier 1 capital ratio above 9 percent, it said.
NLB needs to strengthen its capital as Slovenia’s export-driven economy teeters on the brink of a second recession in three years, pushing more and more companies into bankruptcy and forcing the lender to set aside record reserves to cover bad loans. The bank last year reported a third consecutive loss amounting to 239 million euros.
NLB today won temporary European Union approval for government funding, according to an e-mailed statement from the the European Commission in Brussels.
The Commission approved the move “for six months, to give NLB and Slovenia time to submit an updated restructuring plan,” it said. The Commission “has doubts whether the proposed measures will enable the bank to become viable without continued state support.”
The Slovenian government, which holds an indirect majority in NLB, gave the bank 320 million euros by purchasing contingent convertible bonds as a temporary solution, Finance Minister Janez Sustersic has said. Slovenia is looking for a partner to lower its stake to a 25 percent holding plus one share, he said.
“It wasn’t a total surprise that KBC wasn’t allowed to contribute to the capital increase,” Andraz Grahek, an independent financial adviser and a former fund manager at KD Funds LLC in Ljubljana said by phone today. “It would have been hard to believe that KBC would give up its profitable bank business in the Czech Republic and elsewhere in east Europe to prop up the loss-making NLB.”