NLB May Need 500 Million-Euro Capital Boost by End of 2013

Nova Ljubljanska Banka d.d. may need an additional capital increase of as much as 500 million euros ($609 million) by the end of next year as Slovenia’s biggest financial services company grapples with rising bad loans.

“Due diligence has concluded that NLB has about 1.5 billion euros of the worst kind of loans,” Finance Minister Janez Sustersic told reporters in Ljubljana today. “The bank may need up to 500 million euros of fresh capital by the end of 2013, but only if we don’t take out these bad loans from its balance sheets.”

NLB received 381 million euros from the Slovenian government and its agencies at the end of June after the second largest owner KBC Groep NV of Belgium failed to win European Commission approval to participate in the capital boost. The increase has improved the Ljubljana-based bank’s core Tier 1 capital ratio to above 9 percent as demanded by the European Banking Authority and the Slovenian central bank.

Slovenia’s fragile banking industry is under strain as the second recession in three years pushes more and more companies into bankruptcy and forcing lenders to set aside record loan-loss reserves. Sustersic has said the euro-region country isn’t considering a bailout for its banks, which are relying on the European Central Bank for liquidity because of limited access to wholesale funding.

Bad loans at NLB amount to 3 billion euros, or 20 percent of the bank’s loan portfolio, Bozo Jasovic, acting Chief Executive Officer of the lender said in an interview with Slovenian weekly Mladina on July 6.

Slovenia plans to transfer non-performing loans from some of its biggest banks to a state-owned wealth fund to clean up their balance sheets and spur lending to the economy, Sustersic said on July 5.

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