The First Bad Loans to the ‘Bad Bank’ Arrive at the End of June

At the end of this month, the first transaction will be executed with Nova Ljubljanska Banka (NLB) to transfer part of its bad loans to the so-called bad bank, it was announced on Tuesday in Ljubljana.

The first transaction of NLB’s bad loans will be completed on June 28, and at the beginning of next month, the same process will begin at Nova Kreditna Banka Maribor (NKBM), followed by Abanka Vipa, announced Andrej Šircelj, the president of the ‘Bank Asset Management Company’, which is the official name of the ‘bad bank’, an institution established by the government to clean up the balance sheets of state-owned banks from bad loans and rehabilitate them.

“The receivables that will be transferred to the bad bank will need to be well managed,” said Šircelj, adding that the recapitalization of banks with budget funds cannot last indefinitely.

This year, the three leading Slovenian banks owned by the state need to be recapitalized with 900 million euros to meet the capital adequacy ratio required by the Slovenian central bank. Of that, 500 million euros pertains to Nova Ljubljanska Banka (NLB), whose bad loans are estimated to approach 2 billion euros.

The government’s plan is to transfer bad receivables that banks cannot collect to the bad bank at a discounted price and later attempt to sell them as best as possible, so that banks can be re-enabled for positive operations and restore lending activity. Prime Minister Alenka Bratušek’s government has also placed NKBM on the list of state companies to be sold, but this will only be possible after it has been rehabilitated.

The European Commission links its consent to the process of transferring bad loans in leading Slovenian banks with an external audit of their balance sheets due to some opinions that it could be shown that bad loans in Slovenian banks exceed 7 billion euros, as assessed by the Slovenian central bank.

The high burden of banks with bad loans in recent months has been the main source of speculation that Slovenia will need foreign financial assistance to rehabilitate them. Prime Minister Alenka Bratušek has repeatedly denied this, stating that the government’s plan for rehabilitating the situation in banks is realistic.

The amount of bad loans in the three largest banks is estimated at 3.3 billion euros (about 2 billion in NLB alone), and the government would replace that toxic asset, which will be transferred to the bad bank, with securities backed by a state guarantee, so that they can start operating normally and lending to businesses.

It is estimated that the operational costs of the so-called bad bank, which has engaged several foreign experts with international experience in resolving bad loans and rehabilitating banks, will amount to between 20 and 40 million euros over several years of its operation.