Former NLB, NKBM Chairmen Claim Banks Did Not Impact Asset Transfer to Bad Bank

By , 05 Nov 2019, 10:37 AM Business
Former NLB, NKBM Chairmen Claim Banks Did Not Impact Asset Transfer to Bad Bank JL Flanner

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STA, 4 November 2019 - The parliamentary inquiry into suspected abuse of office at the bad bank interviewed on Monday the former chairmen of NLB and NKBM, Janko Medja and Aleš Hauc, who said that the banks had no power in determining which assets will and which will not be transferred to the bad bank as part of the 2013 bailout.

First to be interviewed was Medja, who said the bank was only an "object" and could not participate in determining the methodology for appraising assets, nor had it final say about which assets and why would be transferred to the bad bank.

He was faced with the questions from the inquiry chair, Jernej Vrtovec of the opposition New Slovenia (NSi), about the Bank Assets Management Company (BAMC) using "double standards".

Vrtovec noted that the BAMC made different assessments when placing a company or group on the list for transfer of assets, taking the DZS group as an example, as it had been transferred on the bad bank, while KD Group, which is also a financial holding, was not.

Medja, who was the chairman of NLB between the autumn of 2012 and February 2016, which included the state-sponsored bank bailout, said he could not answer the question as he did not remember concrete cases.

Regarding alleged pressures, he said that representatives of certain companies did ask the bank about the transfer, but NLB's answer was always that it stuck to the rules and procedures in line with the law.

According to Medja, the first list of claims to be transferred to BAMC was compiled by NLB, and was sent to an inter-ministerial task force and the Banka Slovenije central bank, with the two coming up with the final list.

Banka Slovenije had data on claims to individual companies from other banks, he said, adding that he could not tell why some claims or assets had not been transferred, as he did not have access to all documents.

According to Medja, the bank did not agree with certain results of asset quality reviews (AQR) regarding for how much claims could be sold. Due to the large quantity of data and relatively short time, he allows for the possibility that not all appraisals were compliant with the international accounting standards, in particular in real estate.

In individual cases, the bank's assessments did not comply with the AQR results, but the eventual estimates on the amount of the required capital were at a similar level, he added.

Medja explained the difference in the initial estimate about how much capital NLB needs and the final calculations with the fact that not the entire portfolio was reviewed in the first estimate.

Surprising things were discovered mainly in investments in foreign countries, he said, adding that NLB services were adopting in 2013 the recommendations of the European Banking Authority (EBA), which were becoming stricter.

Medja stressed on several occasions that when it comes to the bailout measures, NLB was an "object", adding that the bank's management had wanted to get a clearer picture and get a greater role in talks, "but had no chance to discuss it".

The bank could not risk capital inadequacy, and could not get capital on the market, he said, adding that the state-sponsored measures were an "all or nothing" approach, with the bank not being able to pick recapitalisation or transfer or bad claims to the bad bank alone.

"We could only pick recapitalisation as it was envisaged, or capital inadequacy, risking to lose the trust of deposit holders," he concluded.

Also interviewed was Hauc, who managed NKBM from March 2012 to February 2015. He too said that the bank had no say about which assets would be eventually transferred to BAMC, and repeated some of the other explanations offered by Medja.

He said that the the stress tests in 2013 had been "too brutal" and the AQR strongly underestimated the value of insurance of claims. Banka Slovenije was warned about this, but the bank had no influence whatsoever, he added.

Hauc noted that NKBM had wanted that all non-performing assets be transferred to the bad bank, with many of them staying in the bank after the bailout. "There is no logic in carrying out a bailout without transferring everything that is disputable to BAMC."

He also assessed that Banka Slovenije had been rather limited and that the European Commission had the main say, in fact its "lower-ranked officials", who had been sending e-mails about what needed to be done. "The bank had to implement the measures, otherwise it would go bankrupt."

Regarding the estimate of the amount the banks needed in the bailout, Hauc said that no damage had been done. "The state put the money from one pocket to the other. Even if too much money was given, it has not been lost."

He assessed that a majority of bad loans were a consequence of the crisis, and to lesser degree of bad practices. "Companies were borrowing excessively and then stumbled, while banks were not conservative enough in approving loans."

According to him, the US fund Apollo and the EBRD, which acquired NKBM in 2016 for EUR 250 million, got the bank for cheap but are doing a good job. "Apparently a bank had to be sold to show that we are a serious country, not a banana republic," Hauc concluded.

On the other hand, Janez Fabijan of Banka Slovenije said that the banks themselves had sent the lists of companies to the central banks, as he was quizzed about his role in due diligence procedures, transfer of claims to DUTB and other bail-out procedures.

"I never worked in supervision, but I'm objectively responsible as a member of the Banka Slovenije board of directors," he said, adding that when it came to the bailout, it would be wrong if the central bank had acted differently.

According to him, the transfer of claims to BAMC was transparent, with lists of companies to be transferred being made by the banks, as they were obliged to know their clients.

It was determined with a government decree which claims will be transferred, said Fabijan, who could not tell whether Banka Slovenije made any interventions in the lists. "Perhaps something was changed, but not too many times."

This was done in any case with consent from the banks, and the decree determining the criteria for the transfer of claims gave the banks and BAMC absolute advantage compared to Banka Slovenije, he said.

He added that the central bank had only participated in the process and admitted that he had been visited by a few representatives of companies claims to whom were planned to be transferred to BAMC.

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