* Banking system had loss of 436 mln euros in 2011
* Three largest banks need fresh capital
LJUBLJANA, May 14 (Reuters) - Slovenian banks have to reduce their dependency on ECB financing, increase their capital and improve their management in order to re-establish a stable banking system in the country, the Bank of Slovenia said on Monday.
It said the Slovenian banking system posted a joint loss of 436 million euros ($564.36 million) last year versus a loss of 98.1 million in 2010, mainly due to non-performing loans to local firms.
“With the operations of long-term financing at the ECB the banks ensured sufficient sources to repay their obligations to foreign creditors amid limited possibilities of refinancing on international markets,” the bank said in a statement after a regular bi-monthly board meeting.
“But in the long run it is important that banks reduce dependency on ... the ECB sources,” it added.
The central bank did not say how much cheap ECB three-year loans with an interest rate of 1 percent were taken up by Slovenian banks but local media reported the two largest banks, state-owned Nova Ljubljanska Banka (NLB) and Nova KBM took up 1.7 billion euros of ECB loans in March alone.
NLB, NKBM and the country’s third largest bank Abanka Vipa all ended 2011 in a loss and said they needed fresh capital to meet regulators’ demands.
NLB, in which Belgian banking and insurance group KBC owns 25 percent, has the highest capital needs of the three banks as the European Banking Authority had said it needed to raise its capital by 400 million euros by the end of June.
Major credit rating agencies have cut the ratings of the three banks several times since the last year because of asset quality deterioration and poor loss-absorption capacity.
“The process of re-establishing a stable financial system ... will be a long-term one as the banking sector and the corporate sector need to restructure,” the central bank said, adding the speed of restructuring will also depend on the calming down of the European debt crisis.
Slovenia was badly hit by the global financial and economic crisis due to its dependency on exports and is struggling with a new recession after a mild recovery in 2010.
The government expects the economy to contract by 0.9 percent this year versus a contraction of 0.2 percent in 2011 due to lower export demand and poor domestic spending amid rising unemployment and budget cuts. ($1 = 0.7726 euros) (Reporting By Marja Novak; editing by James Jukwey)