Mladina: Government failing to protect national interest from Hungary

STA, 19 April 2019 – The left-leaning Mladina is critical of Slovenia's reluctance to protect its national interests in a commentary accompanying revelations about connections between the European Commission, the Hungarian government and a bank vying to take over Abanka. The weekly underlines that strong financial institutions are the backbone of a sovereign country.

Editor-in-chief Grega Repovž says that a journalist of Mladina found new connections between the Hungarian government and a Hungarian official at the European Commission who insisted that Slovenia privatise its banks.

The situation is becoming increasingly problematic because the revelations trigger doubts about the actions of those involved in Slovenia, as well as the expertise of the European Commission.

Mladina shows connection between the Hungarian government led by Viktor Orban and István P. Székely, who works for the commission, also highlighting the efforts of Hungarian OTP bank to take over Abanka, which is being privatised.

It wonders why the Hungarian Imre Balogh, who also has links to the Orban government, was appointed the CEO of Slovenian bad bank in 2015 and why Laszlo Urban, a member of Orban's party Fidesz, was appointed a member of the NLB supervisory board in 2016.

"What sort of network has the Hungarian government already woven in Slovenia, apart from the obvious links to the Democrats (SDS) and the media it bought from it?" the weekly wonders, adding that Ambassador Edit Szilágyiné Bátorfi had met privately with Slovenia's central bank governor Boštjan Vasle.

The world is changing and countries are pursuing increasingly selfish interests. "Small countries, above all, need to think very carefully about future relations and how to position themselves today to be safe from turbulence in the future."

But Slovenia does not have many experts capable of thinking so far in advance, Mladina says under the headline Time for the Wise.

Strong banks and financial institutions are the backbone of a country but the incumbent government does not seem to be aware of this.

It has not stopped the privatisation of Abanka although countries are fighting for "the last segment of Slovenia's financial backbone" in plain sight.

Demokracija: Politicians should not speak of media freedom

STA, 18 April 2019 – The right-leaning Demokracija says in its latest commentary that the concern for freedom of the press expressed by ruling politicians in the wake of the alleged pressures on the private broadcaster POP TV should be taken with a grain of salt, adding that journalists should actually be worried about politicians who are doing that.

The ruling politicians were quick to swear on democracy and presented themselves as defenders of media independence from politics and capital, but this care of politicians for freedom of the press should raise concern among journalists.

Friday's editorial headlined Riders of Freedom notes that, for instance, MEP Tanja Fajon of the coalition Social Democrats (SD) said on Twitter that "if there is no democracy, there could be no media freedom".

Fajon's idea that democracy ensures freedom of the press is wrong. It is the opposite: freedom of the press, individuals, expression and economy can ensure democracy, which manifests itself in various forms, the editor-in-chief of the right-leaning weekly, Jože Biščak, argues.

Slovenia has around 20,000 laws and by-laws and also has media legislation. "What is regulated by law cannot be free. The media are therefore not free, they are regulated. And the government will make media legislation only stricter."

Some have gone as far as proposing licences for journalists, which would be a very totalitarian thing, as an "expert committee" appointed by politicians would determine who is journalist and who is not.

They say this is a method to fight bad journalism, protect the public from fake media and fake journalists, and improve media professionalism. But this has no basis in reality, as despite the increasing regulation, there are a lot more media outlets today, and they are much more accessible to an average citizen.

"It is not up to the state or politicians to recognise the legitimacy of the media, it is up to every individual to choose freely what sources and media they will believe. This is how it goes in free societies."

Biščak concludes by saying that those who think that the majority of Slovenian citizens are not capable of differentiating between disinformation and information and that politics could "help" them in that, are inclined to dictatorship.

All our posts in this series can be found here

STA, 12 March 2019 - The Specialised State Prosecution, which deals with the most complex forms of crime, has told the STA that investigations continue into a number of cases of banking crime. Some tangible success has already been achieved, with two bankers, both former executives at Factor Banka, sent to prison so far.

The specialised service, which was launched in its current form in 2012, said it presently had 22 cases in the investigation. These involve 127 individuals and legal entities, 82 of which are practising or former bankers. The total damage in the cases is estimated at EUR 221.67m.

There are moreover 15 cases where a criminal charging document has already been filed. 48 individuals face charges, 29 of whom were working in the banking sector at the time of the alleged crime. The total damage estimated for these cases is EUR 92.19m.

While there are several more open cases in the pre-trial phase, the beginning of 2018 saw the first final guilty verdict for bankers in Slovenia.

It involved Dušan Valenčič and Boris Pesjak, the former executives of Factor Banka, the small bank that was liquidated in early 2016. Found guilty of abuse of office, both are serving prison sentences of 15 months.

Another Factor Banka executive, Mojca Lampret Križaj, pleaded guilty to abuse of office in 2017 and received a suspended sentence of three years.

Meanwhile, a trial has been underway at the Ljubljana District Court since 2015 against four former managers of the Slovenian branch of Hypo Alpe Adria - Andrej Potočnik, Andrej Oblak, Anton Romih and Božidar Špan - who stand accused of defrauding the bank of millions of euro.

A fifth defendant in the case, the former boss of bankrupt builder Vegrad, Hilda Tovšak, pleaded guilty in return for a suspended sentence of a year and a half.

Also still open is the case against former board members of the recently privatised NLB - Draško Veselinovič, Miran Vičič and Matej Narat.

The trio have been accused of acting with criminal intent in approving in 2009 a generous loan to Simona Dimic, an aide to Borut Pahor, the head of state, when he served as prime minister. They were found innocent in 2016, but the Higher Court ordered a retrial.

Another NLB executive, Dušan Šuštar, was found guilty of approving two loans worth EUR 2.75m in 2008 although knowing they would not be returned. He got four years in prison, but the verdict is not final yet. Several more lower profile cases of guilty verdicts related to NLB were listed by the prosecution.

The latest senior bakers to be found guilty of fraud committed at the height of the economic and financial crisis were Romana Pajenk and Milana Lah, who served as CEO and board member, respectively, at Probanka, a similar case to Factor Banka.

The pair received in January this year suspended sentences of 23 months with four-year probation for defrauding two businessmen of EUR 1.5m. The prosecution had sought four years in prison and has announced an appeal.

STA, 12 January 2019 - The global financial crisis, which erupted in 2008 with the collapse of Lehman Brothers, hit Slovenia with a delay, but it exposed huge weaknesses that had built up in the majority state-owned banking system. By 2012 Slovenia was locked out of financial market, and it took until the bank bailout in late 2013 before the sector recovered.

In the run-up to the crisis, credit growth was buoyant, driven by cheap money after interest rates collapsed following the changeover to the euro in 2007.

Loans to the non-banking sector surged by almost two-thirds between 2006 and 2008. Banks financed the expansion mostly by securing financing from foreign banks.

The crisis thoroughly razed the banking landscape.

Banks' total assets peaked at over EUR 50bn in 2010 before reaching a low of just 37bn six years later.

Related: Economic Crisis that Produced a “Lost Decade” in Slovenia

Similarly, lending contracted by more than a third between 2010 and 2016, as banks deleveraged to pay back their foreign loans rather than extend new loans to Slovenian businesses.

On the other hand, deposits remained robust as households responded to the crisis by tightening spending, which deepened the economic crisis but gave banks a lifeline when foreign financing dried up.

The total volume of loans slipped slightly during the crisis as households drew down their savings, going from EUR 23.9 bn in 2010 to EUR 22.4bn in 2013, but the contraction was never as severe as the tightening of lending.

Bank statistics

       Total assets     Loans to non-banking sector

          (in EUR m)       (in EUR m)

2006      34.1             20.6

2007      42.6             28.5

2008      47.9             33.7

2010      50.8             34.7

2013      40.3             24.3

2014      38.7             21.5

2016      37.1             20.5

2018*     38.3             22.2

* As of 31 October

Source: Slovenian central bank

A property bubble that burst in 2010

The credit explosion leading up to the crisis inflated a property bubble, which burst post-2010 as large construction companies that also financed their own projects collapsed one after the other, as did over-leveraged financial holdings.

The share of non-performing loans started to soar, forcing banks to set aside increasing provisions and writing down assets, leading to a negative spiral.

Whereas foreign-owned banks received capital injections from their shareholders, the three biggest banks in the country were all in state ownership, requiring growing amounts of public funds to keep them afloat.

Video: Slovenia's Economic Crisis, 2012

The story came to a head in December 2013, when the treasury spent EUR 3.5bn recapitalising NLB, NKBM and Abanka, wiping out shareholders and junior bondholders in the process. Two smaller banks, Probanka and Factor Banka, were wound down.

At the same time, about four billion euros in non-performing loans were transferred onto the newly-established Bank Assets Management Company (BAMC), which also absorbed the assets of Probanka and Factor Banka.

After the banking system was bailed out banks were flush with cash and largely freed of non-performing loans, but it took several years before lending recovered.

Bank performance

      Net profit       Net provisions, write-downs

         (in EUR m)       (in EUR m)

2008     208              -120

2009     162              -279

2010     -99              -811

2013   -3439             -3809

2014    -106              -650

2016     364               -96

2017     443                43

2018*    452                45

* As of 31 October

Source: Slovenian central bank

Lawsuits related to the period

Echoes of this period continue to reverberate five years later, as lawsuits by subordinated bondholders and shareholders wiped out in the bailout make their way through courts.

These investors have targeted in particular the valuations that determined the size of the bailout, alleging that Slovenia had been the target of speculators and a guinea pig for new EU bank resolution rules.

The commotion over the bailout resulted in criminal investigations at the central bank, the resignation of governor Boštjan Jazbec and, recently, criminal charges against the board of governors serving at the time of the bailout.

The costs of the bailout accounted for a significant chunk of the increase in general government debt during the crisis, which ballooned from 22% of GDP in 2008 to almost 84% of GDP by 2015.

The surging debt was accompanied by growing debt servicing costs, as the precarious state of the economy during the crisis led to higher borrowing costs; for a while, Slovenia was practically locked out of the eurobond market and had to borrow in US dollars.

Public debt did not start to decline until 2016, when the economic recovery was already in full swing. In the past two years the treasury has been busy replacing dollar debt with euro bonds and debt has started to decline at a more rapid pace towards the eurozone ceiling of 60% of GDP.

General government finances

      Deficit       Debt        Debt servicing costs

         (% of GDP)  (% of GDP)   (EUR m)

2008     -1.4         21.8         326.1

2009     -5.8         34.6         326.4

2010     -5.6         38.4         476.7

2011     -6.7         46.6         510.6

2012     -4.0         53.8         632.5

2013    -14.7         70.4         827.0

2014     -5.5         80.4        1082.6

2015     -2.8         82.6        1028.8

2016     -1.9         78.7        1064.0

2017     +0.1         74.1         977.3

Source: Eurostat, Statistics Office, Ministry of Finance

STA, 9 November 2018 - Slovenia's largest bank, NLB, fetched EUR 51.50 per share in the initial public offering, the bottom of the offering price range. The state will initially sell 59.1% of the bank for just below EUR 609m, but taking into account an over-allotment option that stake could increase to 65%.

Based on the pricing, the market capitalisation of NLB will be approximately EUR 1.03bn at the start of trading on the Ljubljana Stock Exchange and the Main Market of the London Stock Exchange on 14 November, a release from the bank and Slovenian Sovereign Holding (SSH) said.

The book value of the share capital at the end of June was EUR 1.51bn and the final offering price represents 68% of the share's book value. The SSH set the IPO offering price at EUR 51.50 and EUR 66 per share. The offering price in the aborted IPO last year was set at EUR 55-71.

The release says that the seller is making an additional 1,18 million NLB shares available pursuant to the over-allotment option which, if exercised in full, would increase the offer size to EUR 669.5m, representing 65% of the share capital on admission.

A stabilisation mechanism, the option is said to have been made available on the demand of large international investors. Stabilisation managers Citigroup and WOOD & Company will retain a portion of the shares to close deals within 30 days from listing in order to stabilise the price.

The shares are to be floated on the Ljubljana and London stock markets on 14 November when the settlement of shares is to take place. Investors have time to pay for their shares by then.

According to the pricing notification issued on NLB's website, the biggest single institutional buyers of shares are US financial fund Brandes Investment Partners (7.6%) and the EBRD (6.3%).

Since information on the buyers of shares in London are not public, detailed data on the dispersed structure of foreign owners will not be available when details are to be presented on 14 November.

Unofficially, the demand considerably outstripped what SSH was willing to accept in a bid to avoid the most predatory investors while forming a buffer if anything was to go wrong.

"We are very proud of having completed the offering of NLB's shares. Today's announcement represents a significant milestone in the privatisation process and in fulfilling our commitments to the European Commission," SSH chairman Lidia Glavina was quoted as saying in the release.

NLB chairman Blaž Brodnjak hailed the pricing as "another important milestone in the process of privatization". "We are looking forward to opportunities and challenges that the listing on the stock exchange will bring to the bank."

The government committed to sell the bank in exchange for the European Commission's approving a EUR 1.56bn state aid for the bank in late 2013.

While the state is to keep a controlling stake of 25% plus one share, it committed to sell at least 50% this year and any outstanding share of up to 75% minus one share by the end of next year.

Until the sale commitment is met in full, the bank will need to implement at least part of compensatory measures, including closing down offices in Slovenia, with 14 slated for closure in early December.

Moreover, since the state sold this year will be less than 75% minus one share, the bank will also have to start procedures to sell NLB Vita, its insurance subsidiary.

In addition, NLB will be able to approve new loans only if receives the minimum yield from equity instruments. NLB cannot do leasing business or make acquisitions either.

The bulk of shares in the IPO was offered to institutional investors. Retail investors were able to subscribe at least 10 shares at EUR 66 apiece. Unofficially they paid in some EUR 30m. The overpaid amount will be returned by 15 November.

The shares were also bought by members of the NLB supervisory and management boards. NLB chairman Blaž Brodnjak acquired 1,136 shares and the head of the supervisory board Primož Karpe 606 shares.

NLB paid out a total of EUR 378.2m in dividends to the state in the past three years. The state aid in 2013 amounted to EUR 1.56bn.

STA, 29 October 2018 - Shares of NLB, Slovenia's largest bank, will be priced at EUR 51.50-66 in the forthcoming initial public offering of up to 75% of the bank minus one share, valuing the entire bank at EUR 1-1.3bn. The pricing, revealed in a prospectus released on Friday, is at the lower end of expectations but reflects the current market situation. 

STA, 28 August 2018 - Slovenian banks generated EUR 322.9m in pre-tax profit in the first half of the year, a 26.5% year-on-year increase. Profit after taxes was up 25.3% to EUR 295.7m. The total assets of the banking system rose by more than EUR 0.5bn to EUR 38.5bn, shows Banka Slovenije's report released on Tuesday. 

STA, 6 June 2018 - Despite the favourable general economic situation, upbeat forecasts and a revival in lending, the Slovenian banking regulator advised banks on Wednesday to start preparing for a potential new crisis.