Slovenia's NLB, NKBM to cover capital shortfall from profits

By Marja Novak LJUBLJANA (Reuters) - Slovenia's state-owned banks NLB and NKBM failed the European Central Bank's stress test with a joint capital shortfall of 65 million euros in the event of an adverse scenario, the Bank of Slovenia said on Sunday. Both banks will cover the shortfall -- among the smallest of the 25 euro zone banks that failed the test as of the end of 2013 -- from their profits as both have improved profitability in 2014, the Bank of Slovenia said in a statement. A third bank on the ECB's list, SID banka, passed the stress test. NLB and NKBM were rescued by the state in December when the government narrowly managed to escape an international bailout by injecting more than 3 billion euros into the local banks to prevent them from collapsing under a large amount of bad loans. According to the ECB report, NLB would lack 34.3 million euros in capital at the end of 2016 under an adverse scenario that envisages a three-year recession from 2014-2016 while NKBM's shortfall would be 31 million euros. The Bank of Slovenia said none of the three tested banks would have any shortfall under a baseline scenario, under which they would have a combined capital surplus of 754.7 million euros. NLB and NKBM now have two weeks to submit a plan to boost their capital to the ECB, which has two more weeks to approve or reject it. "The balance sheet clean-up and recapitalization (last year) are already yielding results: the two banks are profitable and performing well in 2014," the central bank said. The finance ministry said test results showed that the resistance of the Slovenian and the European banking sector has improved which should "calm the markets and further strengthen the confidence in the European banking sector". (Reporting By Marja Novak; Editing by Zoran Radosavljevic and Alexander Smith)