Slovenia appears to be on its way to becoming the sixth eurozone country to request an EU bailout as it seeks to prop up its struggling banking sector, including the country’s largest bank that is partly owned by Belgium’s KBC.
A European Commission spokesman said yesterday (3 July) that the EU executive had not received an official request for help from Slovenia and that it had nothing to add to the financial recommendations made to Slovenia in May (see background).
Bloomberg quoted Michal Dybula, an economist at the BNP Paribas, as saying it was “increasingly likely” that Slovenia would be the next eurozone country asking for a bailout to prop up the banking sector.
If so, Slovenia, the first post-communist country to have adopted the euro, would join Greece, Ireland, Portugal, Spain and Cyprus in the bailout camp.
Slovenia’s predicament reportedly stems from the financial difficulties of Nova Ljubljanska Banka (NLB), the country’s largest bank.
Eurozone leaders agreed at an October 2011 summit on a plan to recapitalise banks, under which they were required by 30 June 2012 to have 9% of the highest quality capital measured against liabilities.
The difficulties appear to have arisen after KBC, the Belgian bank that owns 25% of NLB, abandoned plans to buy new shares in an aborted deal in which it would have provided funds for recapitalisation.
The rest of the bank is state-owned and the country, already under deficit procedure, finds it difficult to fund the effort.
Slovenia's budget deficit soared to some 5.5% of GDP in 2011 from a balanced budget in 2007 because of lower tax income and high government spending.
According to some reports KBC decided not to acquire new shares, as it was not sure if the European Commission would approve the move. KBC did not respond to EURACTIV's e-mail requests for a response.
In 2008 KBC suffered heavy losses and received Belgian government support a year later. As a condition for the support, it committed to sell several subsidiaries.
Antoine Colombani, spokesman for Competition Commissioner Joaquín Almunia, said that in the recapitalisation of NLB, the Commission is in charge of ensuring the state support granted complies with EU state aid rules.
A ‘specific situation’
The specific situation of this case, however, is that KBC has also been receiving substantial amounts of state aid and as a result has obligations under a restructuring decision taken by the Commission in November 2009, he explained.
The restructuring plan for KBC approved by the Commission includes the divestment of a number of assets. In particular KBC's stake in NLB must be divested by 31 December 2012. In a meeting requested by KBC, Almunia informed the Belgian company that it still needs to comply with this decision.
Almunia also reportedly told KBC that if they wanted to extend their participation into NLB beyond 2012, they should then propose compensatory measures, in terms of an equivalent divestment is offered in compensation. KBC has already used such a scheme with respect to divestment of its acquisitions in other Central and Eastern European countries.
Despite this possibility, KBC announced its withdrawal from the recapitalisation of NLB.
The Slovenian authorities then told the Commission that they would find an alternative way to recapitalise NLB, with an additional capital injection of €382.9 million, a huge sum for the small country. The Commission temporarily approved this recapitalisation, but also launched an in-depth investigation on the restructuring plan of the bank.
Slovenian Prime Minister Janez Janša said on 27 June that the country risks a “Greek scenario”. Two days later, he told journalists in Brussels at the EU summit that the government was “doing everything to find a solution” and was seeking to avoid the need for assistance.