Opinion of the European Central Bank of 22 March 2013 on the measures for strengthening bank stability (CON/2013/21)
Date: 2013-03-22
Institutions: European Central Bank
Subjects: Slovenia, bank, capital increase, financial stability, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 22 March 2013 

on the measures for strengthening bank stability 

(CON/2013/21) 

Introduction and legal basis 

On 7 March 2013, the European Central Bank (ECB) received a request from the Slovenian Ministry of 

Finance  for  an  opinion  on  a  draft  regulation  on  the  implementation  of  measures  to  strengthen  bank 

stability (hereinafter the ‘draft regulation’).  

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning  of  the  European  Union and the third  and  sixth indents  of  Article 2(1)  of  Council  Decision 

98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities 
regarding  draft  legislative  provisions1,  as  the  draft  regulation  relates  to  Banka  Slovenije  and  to  rules 

applicable to financial institutions insofar as they materially influence the stability of financial institutions 

and  markets.  In  accordance  with  the  first  sentence  of  Article 17.5  of  the  Rules  of  Procedure  of  the 

European Central Bank, the Governing Council has adopted this opinion. 

1.  

Purpose of the draft regulation 

1.1  Criteria and conditions for the application of measures aimed at strengthening bank stability 

1.1.1  The  draft  regulation  implements  the  Law  on  Slovenia’s  measures  to  strengthen  bank  stability2 

(hereinafter the ‘Law on bank stability’). It lays down criteria and conditions for: (a) the transfer of 
a  bank’s3  assets  to  the  Bank  Asset  Management  Company  (BAMC)  or  to  dedicated  companies4; 

(b) the issuance  of  State  guarantees  for liabilities  of the  BAMC  and  of the dedicated  companies; 

(c) the increase of a bank’s share capital and of other capital instruments of banks which are taken 
into account in calculating a bank’s capital pursuant to the Law on banking5, 6. 

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OJ L 189, 3.7.1998, p. 42.  
Zakon o ukrepih Republike Slovenije za krepitev stabilnosti bank (Uradni list Republike Slovenije No 105/2012). 
Pursuant to Article 2 of the draft regulation in connection to Article 2 of the Law on bank stability, ‘bank’ here refers to a 
bank or a savings bank, as defined in the Law on Banking, with its head office in Slovenia. 
Dedicated companies are companies that take over the risks of banks. They may be established by the banks or by the 
banks together with the BAMC, as joint-stock companies, pursuant to Articles 2 and 21 of the Law on bank stability. 
Zakon  o  bančništvu  (Uradni  list  Republike  Slovenije,  No  99/2010,  official  consolidated  text,  9/2011  –  ZPlaSS-B, 
35/2011, 59/2011, 85/2011, 48/2012 and 105/2012). 
See Article 3 of the draft regulation. 

 
 
 
 
                                                           
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1.1.2  The measures may apply to a bank where the Government establishes that the bank does not have, 

or  will  not  have  within  the  following  12  months,  sufficient  capital  to  meet  capital  adequacy 
requirements and, as a result, the stability of the financial system is threatened7.  

1.1.3  In order to be eligible for the measures, a bank must be able to show in its business strategy that it: 

(a)  will  be  able  to  conduct  long-term  sustainable  and  successful  operations  and  have  stable  and 

adequate capital; (b) will implement measures for the suitable participation of its own assets and 

the assets of holders of the bank’s capital instruments taken into account in calculating the bank’s 

capital  to  attain  these  goals;  (c)  will  implement  measures  to  prevent  or  mitigate  any  possible 
distortion of competition8. On the basis of the Government’s decision and after having received a 

positive  opinion  for  State  aid  from  the  European  Commission,  the  BAMC  and  the  bank  will 

conclude  an agreement  on  implementing  the  approved  measures  in accordance with  the  business 
strategy9. 

1.2  Purchase or takeover of bank assets or rights for consideration  

Pursuant to the draft regulation, the BAMC may acquire bank assets by transfer of all rights under 

certain risk items of the bank to the BAMC for consideration. The BAMC may take over risk items 

of a bank only if it also participates in increasing the bank’s share capital or acquires other capital 

instruments of the bank. The following risk items may be transferred to the BAMC: (a) bank claims 
exceeding EUR 500 000 on the day of the valuation against non-payers10 classified in group D or E 

which are in default for more than 90 days or otherwise unlikely to be repaid in full; (b) a bank’s 

capital investments in shares or holdings in the share capital of companies with their head offices in 

Slovenia, which the bank acquired when realising its collateral rights over such capital investments 

or when increasing debtor share capital through non-cash contributions, the subject of which were 

the claims of the bank against the debtor; (c) real property, which the bank acquired when realising 

its  collateral  rights;  (d)  off-balance  sheet  items  of  the  bank,  if  their  acquisition  will  increase  the 
BAMC’s management efficiency or confidence in the bank11. The draft regulation requires that a 
bank’s risk items be valued on the basis of the real long-term economic value of assets12. As a rule, 

the  payment  for  transfers  of  assets  will  be  provided  to  banks  in  the  form  of  BAMC  bonds 

guaranteed by the State and will be equal to the value of the assets, reduced by refinancing costs of 
the  BAMC13.  According  to  the  draft  regulation,  the  bank’s  assets  may  also  be  transferred  to  a 
dedicated company14. 

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See Article 4 of the draft regulation. 
See Article 6 in connection to Article 2(2) of the draft regulation.  
See Articles 8 and 9 of the draft regulation. See also Article 20(6) of the Law on bank stability. 
According to Article 2(2)(4) of the draft regulation, the ‘non-payer’ is a legal entity with its head office in Slovenia and 
the characteristics of a debtor whose financial assets or assumed liabilities are classified in Group D or E in accordance 
with the Decision on estimating the credit risk losses of banks and savings banks.  
See Articles 13 and 14 of the draft regulation. 
See Article 16 of the draft regulation. 
See Articles 21(3) and 22(1) in conjunction with Article 23 of the draft regulation. 
See Article 30 of the draft regulation. 

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1.3 

Issuance of State guarantees for liabilities of the BAMC and dedicated companies 

State  guarantees  may  be  issued  for  BAMC  liabilities  meeting  the  ECB’s  eligibility  criteria  for 
collateral in monetary policy operations15. State guarantees may be issued also for liabilities of a 
dedicated company16. 

1.4 

Increase of bank share capital and other capital instruments 

A  bank’s  share  capital  may  be  increased  with  cash  contributions  for  new  ordinary  shares  of  the 
bank or other capital instruments that are taken into account when calculating a bank’s capital.17. 

2.   Duty to consult the ECB 

The ECB was consulted on the draft provisions of the Law on bank stability, which the draft regulation 
now implements, and adopted Opinion CON/2012/7118. Some of the amendments to the draft provisions 

of  the  Law  on  bank  stability,  following  adoption  of  that  ECB  Opinion,  were  substantial.  The  national 

authorities did not consult the ECB on those amendments. Furthermore, the draft regulation subject to this 

consultation was adopted four business days after the ECB received the request for an opinion. The ECB 

would  like  to  draw  the  Ministry’s  attention  to  the  proper  procedure  for  its  consultations.  The  national 

authorities must consult the ECB on substantive new provisions introduced in draft legislative acts after 

the  adoption  of  an  ECB  opinion  on  such  draft  legislative  act.  The  ECB  must  also  be  consulted  at  an 

appropriate stage of the legislative procedure affording the ECB sufficient time to prepare its opinion and 

enabling  the  relevant  national  authorities  to  take  the  ECB’s  opinion  into  consideration  before  the  draft 
provisions are adopted19. 

3. 

General observations 

The  ECB  welcomes  the  efforts  of  the  Slovenian  authorities  to  address  its  banking  sector’s  difficulties. 

The  implementation  of  the  measures  envisaged  under  the  draft  regulation  would  however  be  most 

effective  in  promoting  financial  intermediation  if  they  were  embedded  in  a  comprehensive  financial 

sector  strategy  aimed  at  creating  a  more  resilient  and  profitable  banking  system.  In  this  context,  an 

independent  system-wide  asset  quality  review  and  a  fresh  stress  test  using  appropriately  severe 

assumptions should be conducted, also with a view to ensuring that the fiscal envelope remains realistic 

and the selection of tools is appropriate. 

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See Articles 25 and 26 of the draft regulation. 
See Articles 30 to 34 of the draft regulation. 
See Chapter 2 of the draft regulation. 
All ECB Opinions are published on the ECB’s website at www.ecb.europa.eu.  
See Article 127(4) of the Treaty on the Functioning of the European Union and Council Decision 98/415/EC. See also the 
Guide to consultation of the European central bank by national authorities regarding draft legislative provisions. 

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4.   Role of Banka Slovenije 

In Opinion CON/2012/71, the ECB noted that Banka Slovenije should be more actively involved in the 

BAMC,  in  particular  in  any  procedure  identifying  the  banks  that  would  be  eligible  to  draw  on  the 

measures. Against this background, it should not be the Government or the Committee, but rather Banka 
Slovenije  assessing  and  deciding  whether  the  stability  of  the  financial  system  is  threatened20.  Banka 

Slovenije  should  also  be  given  a  role  in  the  valuation  of  assets  to  be  transferred  to  the  BAMC  or  any 
dedicated company21. Article 16(2) provides that the long-term real economic value of assets is assessed 

by  the  bank  and  the  assessment  confirmed  by  an  authorised  independent  auditor.  While  the  ECB 

welcomes  the involvement  of  an independent  auditor,  Banka  Slovenije  should be  given  a prominent, if 

not leading, role in determining the long-term real economic value, with the valuation to be confirmed by 

such auditor. 

5. 

Eligibility of bonds, credit claims and other financial instruments as collateral in Eurosystem 

credit operations 

As payment for the transferred assets, the participating banks will receive bonds issued by the BAMC or 

dedicated  companies  and  guaranteed  by  the  State.  Potentially  the  banks  could  also  have  credit  claims 

against the BAMC and dedicated companies arising from loans granted to them for the purposes of asset 

transfer  payment.  It  follows  from  Articles  25  and  26  of  the  draft  regulation  that  these  instruments  and 

credit claims will be structured to meet the conditions set out in Guideline ECB/2011/14 of 20 September 
2011  on  monetary  policy  instruments  and  procedures  of  the  Eurosystem22.  In  this  context  the  ECB 

emphasises that it is the prerogative of the Eurosystem to decide, on the basis of any information it may 

consider relevant within the legal framework laid down in and according to Article 18.1 of the Statute of 

the European System of Central Banks and of the European Central Bank, whether such instruments and 

credit claims fulfil the criteria of its collateral framework. In addition, the consideration provided for the 

transferred  banks  assets  by  the  BAMC  or  a  dedicated  company  must  comply  with  the  Union  state  aid 

framework.   

6. 

Dividend payments and use of excess cash holdings by the BAMC  

The  draft  regulation  should  provide  for  the  necessary  legal  arrangements  to  ensure,  in  a  transparent 

manner, the timely redemption of State-guaranteed BAMC bonds, other financial instruments and credit 
claims of transferring banks23. This may be accomplished by additional provisions which limit dividend 

payments  by  the  BAMC  and  by  ensuring  that  cash  held  by  the  BAMC  is,  as  a  priority,  applied  to  the 

timely or early repayment of the State-guaranteed bonds or other potentially issued financial instruments 

See Article 4(1)(2) of the draft regulation. 
See Articles 3 and 30 of the draft regulation. 
OJ L 331, 14.12.2011, p. 1. 

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23   While the compensation for the assets transferred to the BAMC will be primarily provided in the form of BAMC State-
guaranteed  bonds,  according  to Article  22(2)  of  the  draft  regulation  the  BAMC  may  also  take  a  State-guaranteed  loan 
from the transferring bank or ensure other sources of financing for the takeover of risk items. 

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or credit claims of the transferring banks24. In addition, if the BAMC’s liabilities towards banks arising 

from bonds, credit claims or other potential financial instruments are transferred to another entity after the 
expiry  of  the  BAMC’s  term  in  2017,  as  follows  from  the  Law  on  bank  stability25,  the  cash  protocol 

arrangements should apply to such entity as well. The same requirements should also apply to dedicated 

companies.  

7.   Asset valuation and management 

The valuation of assets to be transferred should correspond to their real economic value. The definition of 

‘real long-term economic  value’ used in Article 16(3) of the draft regulation should be thus brought in 

line  with  the  Communication  from  the  Commission  on  the  Treatment  of  Impaired  Assets  in  the 

Community Banking Sector. The valuation to be performed by Banka Slovenije or the BAMC should be 

confirmed  by  an  internationally  renowned  audit  firm  that  has  not  had  any  business  dealings  with  the 

participating bank for more than three years.  

The BAMC will likely receive a large set of heterogeneous assets, such as diverse credit claims, equity 

participations and real estate property. Therefore, a comprehensive and transparent asset management and 

divestiture strategy should be developed to promote efficient BAMC operations and minimise costs borne 

by the public. To this effect the ECB expects that the BAMC will additionally abide by internationally 

recognised best practice as regards corporate governance. 

8.   Other issues 

Article 5(3)(16) of the draft regulation provides that the bank must include as part of its business strategy 

a  plan  of  measures  to  enhance  the  scope  of  loans,  primarily  of  loans  to  small  and  medium-sized 

companies, and measures to implement the sustainable business model. The ECB notes that the eligibility 

of  banks  for the  measures  envisaged  should  not  be contingent  on  a  commitment  to  increase lending  to 

small and medium-sized companies, since extension of credit should always rely on a sound assessment 

of borrowers’ creditworthiness. 

Given the fixed financial envelope of the BAMC and the need to restore the soundness of participating 

banks, assets that represent the greatest burden for such banks should be transferred to the BAMC first. 

The  corresponding  wording  in  Article 15(2)  should be  brought into  line  with Article  21(2)  of  the  draft 

regulation.  

9. 

Dedicated companies 

The  ECB  notes  that  the  draft  regulation  allows  the  banks  to  also  apply  to  transfer  risky  assets  to  a 

dedicated  company  as  an  alternative  to  the  BAMC.  It  does  not  however  stipulate  any  further  specific 

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See also Opinion CON/2012/108, paragraph 9. 
Article 36(3) of the Law on bank stability provides that the assets, rights and obligations of the BAMC will be transferred 
to  the  Slovenian  Compensation  Company  (or  its  legal  successor,  i.e.  Slovenia  Sovereign  Holding),  whereas  the  legal 
succession  of  the  BAMC  will  be  specified  by  the  Government  in  an  executive  act  on  preliminary  reporting  to  the 
Parliament. 

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conditions that dedicated companies have to meet to be able to take over bank assets, apart from those 

mentioned in Article 32 of the draft regulation. It would be advisable to include in the draft regulation 

minimum conditions on key matters, such as corporate governance standards and conflict of interest rules, 

which would have to be part of the bye-laws of dedicated companies.  

10.  Monitoring the BAMC and dedicated companies 

For asset management companies established in other euro area countries to which bank assets have been 

transferred,  the  ECB  has  welcomed  arrangements  where  an  independent  body,  not  involved  in  the 

activities of the company, monitors the operations of the company and has access to relevant information. 

The ECB notes that no such mechanism is envisaged for the BAMC and dedicated companies that may be 

established.  The  ECB  suggests  that  such  arrangements  may  nevertheless  prove  useful,  to  enhance  the 

acceptance of the scheme and its work, and therefore could still be considered by the authorities in the 

implementing regulations or any other relevant legal act. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 22 March 2013. 

[signed] 

The Vice-President of the ECB 

Vítor CONSTÂNCIO 

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