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Three Slovenian Banks Downgraded as Bad Debt Boosts Capital Need

July 26, 2012

Moody’s Investors Service downgraded three Slovenian banks today as their bad debt portfolios signal a need to futher boost capital of the three lenders.

The agency downgraded Nova Ljubljanska banka’s deposit ratings to B2, from Ba2, and standalone credit assessment to caa1, from b2. Nova Kreditna banka Maribor had its deposit ratings downgraded to B3, from Ba2, and standalone credit assessment to caa1, from b1. Deposit ratings for Abanka Vipa (ABKN) were downgraded to Caa1, from Ba3, and standalone credit assessment to caa2, from b2, it said in a statement.

All three banks, with negative outlook, face “rapid problem loan formation and the erosion of their risk-absorption capacity.”

Slovenian banks are relying on funding from the European Central Bank after surging bad loans and higher borrowing costs limited their access to wholesale funding. Slovenia had to provide a 381 million-euro ($469 million) capital increase for Ljubljana-based NLB after the second-biggest investor in the bank, Belgium’s KBC Groep NV (KBC), failed to win European Commission approval to participate in the effort.

“Overall, the downgrades reflect the significantly increased pressure on the banks’ capital adequacy, which is driven by on-going and severe asset-quality deterioration,” Moody’s said. NLB and Abanka announced in the second quarter they would recapitalise, providing “temporary relief only and the amounts raised, in Moody’s opinion, do not provide these two banks with a sustainable financial position to absorb future losses.”

The capital position of NKBM, the second largest bank, also deteriorated in the first half of 2012 and the plan to replenish capital “via asset sales remains challenging in the current market,” said Moody’s.

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.

Finance Minister Janez Sustersic has said the euro-region country isn’t considering a bailout for its banks. Still, the country plans to transfer non-performing loans from some of the biggest banks to a state-owned wealth fund to help spur lending to the economy, he said on July 5.

To contact the reporter on this story: Gordana Filipovic in Belgrade at

To contact the editor responsible for this story: James M. Gomez at

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