The agreement to sell Nova Kreditna Banka Maribor (NKBM), reached last week, provides a small indication that stability is gradually returning to Slovenia's troubled banking sector, says Fitch Ratings. But the low sale price, reported in the press to be 40% of book value, highlights the bank's weak profile, weighed down by a very high level of impaired loans, many of which could still require additional provisioning.
NKBM, the country's second-largest bank, is the first of three banks bailed out by the state in December 2013 to be sold to the private sector. Appetite for investing in Slovenian banks is low. To date, the only bidders to have emerged are private equity funds, which generally adopt higher-risk investment strategies.
Apollo Global Asset Management, a US-based private equity fund, will acquire 80% of NKBM; the EBRD will take up the remaining 20%. NKBM has an 11.5% market share in Slovenia. Apollo stated that its objective is to complete restructuring of the bank. In our opinion, this is likely to take several years because NKBM still has substantial exposure to highly indebted companies. Impaired loans represented 42% of total loans at end-March 2015, around 60% reserved.
NKBM's privatisation is unlikely to have an immediate impact on the bank's ratings as, in Fitch's view, external support from an investment fund usually cannot be relied on. But accelerated progress in problem loan recoveries, improved performance and maintenance of solid capital ratios could result in positive rating actions.
Slovenia's economy returned to growth in 2013. Fitch forecasts GDP growth of around 2% for each of 2015 and 2016 and expects bank credit to the private sector to stabilise gradually from 2015.
Efforts to restructure and clean up bank balance sheets continue; these are all the more important if the state is to reduce its stake in the banking sector (60% at end-2014). The state is planning the sale of another Slovenian bank, Abanka Vipa, following its merger with Banka Celje, set for Q415. The state also made a commitment to the European Commission to sell 75% of the largest bank, Nova Ljubljanska Banka.
