Guy Norton in Zagreb -
Slovenia's leading lender Nova Ljubljanska Banka (NLB) faces a challenging few months as it looks to raise fresh capital as part of a restructuring plan designed to repair its crisis-ravaged finances.
The bank, which just scraped through the latest financial stress test conducted by the European Central Bank (ECB) in July, is hoping that a shareholder meeting on October 27 will approve a second capital hike of at least €250m demanded by the country's central bank Banka Slovenije. NLB is also looking to issue new bonds potentially worth €1bn to help refinance existing debt and enable it to boost lending. NLB was recently sharply criticised by Development and EU Affairs Minister Mitja Gaspari for failing to support Slovenian corporates with fresh lending.
NLB has already raised €250m in March though a capital increase that boosted its Tier 1 capital ratio to 7.8 % from around 6% - just above the minimum 5% level required by the ECB. That fundraising was almost entirely supported by the Slovenian government, which has a 55% stake in the lender that has been struggling with non-performing loans - running at 16.5% of total lending at end-2010 - which led to a €183.4m loss in 2010.
According to Slovenian economist Joze Damijan Slovenian, taxpayers have already supported NLB to the tune of €1.54bn in net terms in the last two decades, but at its current valuation the bank is worth less than €850m.
For his part, NLB's chief executive, Bozo Jasovic, drafted into the bank in September 2009 to turn around the bank's faltering financial fortunes, has acknowledged that in addition to the global economic slowdown, part of the blame for the 2010 loss lay with the bank's rapid regional expansion in recent years. This led to poor management oversight over the bank's lending practices and a loss of trust by the general public.
In July, Jasovic claimed that the worst may be over for NLB after it reported a small after-tax profit of €1.2m in the first half of the year on the back of lower bad loan charges, which fell roughly 17% to €91m. Although Jasovic forecast in July that NLB would end 2011 in the black, he admitted: "The positive result will be weak and subject to many uncertainties."
The latest predictions from analysts suggest that the bank could actually rack up an €80m loss this year, meaning the bank might need to raise as much as €400m through the capital hike to enable it to meaningfully boost its lending activities.
Friends with benefits
With regard to the forthcoming capital increase, which would boost NLB's Tier 1 capital ratio to 9.5% - 0.5% above the level required by Banka Slovenije - the hope is that the bank's other major shareholder Belgian banking and insurance group KBC, which has a 25% plus one share blocking minority stake, will cough up some much-needed cash. Two development agencies - the European Bank for Reconstruction and Development and the International Finance Corporation – are also understood to have been sounded out about helping NLB.
Whether these potential investors will be willing to participate in the capital hike will largely centre on a question of price. The March increase was transacted at €116 per share and the Slovenian government is reportedly insisting on a similar valuation this time around. However, given NLB's ongoing struggle with NPLs, would-be investors are reported to be demanding guarantees that €116 would also be the minimum price if they decided to exit the bank.
Another possibility for the capital increase is an IPO, although given current turbulent market conditions any potential share offering would likely to have to be completed at a much lower valuation than €116 per share.
Although Banka Slovenije Governor Marko Kranjec has said that he wants the capital increase to be completed by the end of the year, protracted talks over the fundraising may mean it is not carried out until the first quarter of 2012. "The various parties involved in the capital increase discussions make the process more complicated," says Lindsey Liddell, a director at Fitch Ratings in London.
NLB is also said to be mulling a €300m-€400m unsecured bond and a pioneering covered bond issue backed by public sector loans of up to €600m, which would be the first ever such bond issued in Slovenia. Proceeds from the two transactions would help NLB to repay an outstanding €1.5bn issue which matures in 2012. The bank has also been active in the international syndicated loan market, securing a €350m two-year credit from a syndicate of 16 banks. "The recent syndicated loan showed that NLB still has relationship banking ties it can call on," says Liddell.
Meanwhile, after its latest meeting with NLB, Slovenia's Capital Assets Management Agency (AUKN), which manages the government's corporate shareholdings, has outlined the future steps it wants the bank to take. These include a comprehensive audit of NLB's operations in recent years to identify and prosecute those individuals responsible for questionable lending decisions and to introduce measures to help to prevent any reoccurrence. AUKN also stated that it wants NLB to accelerate and strengthen cost-cutting measures, which it claims have been too slow and too weak so far, in a bid to improve the bank's return on equity to 10% by 2013.
Clare Nuttall in Bucharest - Macedonia’s EU accession progress remains stalled amid the country’s worst political crisis in 14 years, while most countries in the Southeast Europe region have ... more
bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more
bne IntelliNews - Central and Eastern European leaders blasted Russian "aggression" on November 4 and called for Nato to boost its presence in the region. The joint statement, issued at an ... more