The European Central Bank (ECB) has warned it will take legal action after ECB information was seized during a raid in Ljubljana on July 6. Police raided four business premises in the Slovenian capital, including the central bank’s offices, as part of a criminal investigation into the 2013 overhaul of the banking sector.
The Slovenian authorities stepped in to recapitalise several major banks and poured some €3bn into the banking system in late 2013, with the aim of stabilising the financial sector and avoiding an international bailout. At that time the sector was burdened by a large amount of bad loans. Six banks - Nova Ljubljanska Banka (NLB), Nova Kreditna Banka Maribor (NKBM), Abanka, Banka Celje, Probanka and Factor banka - received capital from the government.
According to a July 6 statement from the Slovenian police, there are suspicions concerning an assessment of one of the banks rescued by the state in 2013, which meant that that bank could gain financial benefits and scrap its obligations towards holders of subordinated bonds and subordinated debt worth €257mn, due to decisions taken by "official persons".
As part of the banks' overhaul a total of around €600mn of subordinated bonds were scrapped at five banks. The Slovenian Association of Small Shareholders responded by filing several court cases against the central bank and local banks, claiming the subordinated bonds and shareholders' capital in rescued banks should not have been erased.
The central bank had repeatedly rejected allegations that it mishandled data used when putting together a rescue package for Slovenia's banks, Reuters reported.
The raids were carried out by officers from the National Investigation Office of the Criminal Police Directorate. The police said their operational activities were focused on collecting information and evidence to prove the suspicion that there was a crime of abuse of office or official duties, for which four individuals are suspected. None of the suspects have been arrested, because there are no legal grounds.
Reuters reported on July 6 that the central bank confirmed that "some of its employees" were being investigated, but declined to comment on local media reports that the bank's governor, Bostjan Jazbec, was among them. Jazbec sits on the European Central Bank (ECB) governing council.
The ECB announced it would take legal action against Slovenia after police seized documents from Banka Slovenije and ECB information held by the bank. Specifically, it referred to information stored on the internal network of the central bank and on IT hardware used by the governor, a former deputy governor and some staff members in the course of a pre-criminal investigation procedure.
“I formally protest against such unlawful seizure of ECB information and call upon the Slovenian authorities to remedy this infringement. In addition, the ECB will also explore possible appropriate legal remedies under Slovenian law,” ECB president Mario Draghi said in a letter to the State Prosecutor General of Slovenia on July 6.
Draghi said also that the ECB had been informed that the relevant Slovenian authorities were made aware that the seized equipment contained ECB information and that such information is protected under directly applicable primary EU law.
“Therefore, the ECB deplores that there was no attempt to find a solution reconciling the conduct of the pre-criminal investigations with the ECB’s privilege on inviolability of its archives. In this context, the ECB affirms its consistent stance not to interfere with national (pre-) criminal investigations,” Draghi’s letter reads.
He said the ECB also regrets that the actions of the Slovenian police risk putting into question the fulfillment of Banka Slovenije’s tasks as a member of the Eurosystem, as well as that of its governor in his personal capacity as a member of the governing Council of the ECB.
“Finally, I will inform Mr Jean-Claude Juncker, the President of the European Commission of the incident with a view to take any necessary follow-up steps,” Draghi said.
The share of bad loans in the Slovenian banking system decreased to 8% in April from 8.2% in March and 8.5% in February, Banka Slovenije said on June 20. The ratio has been on a downward trend over the past few years. It fell to 9.9% at the end of 2015 from 11.9% at end-2014 and 13.4% at end-2013.
Banks in Slovenia recorded a net profit of €171.2mn in January-April, significantly up from the same period in 2015 when net profit stood at €110.3mn, Banka Slovenije announced on June 20.