QUESTIONABLE BANK LOANS EXPOSE SLOVENIAN

C O N F I D E N T I A L LJUBLJANA 000116

SIPDIS

E.O. 12958: DECL: 04/22/2019
TAGS: ECON EFIN EINT PGOV SI
SUBJECT: QUESTIONABLE BANK LOANS EXPOSE SLOVENIAN
GOVERNMENT TENSIONS

Classified By: CDA BFreden, reason 1.4(b,d)

Summary
--------------

1. (C) Dr. Drasko Veselinovic, president of mostly
state-owned Nova Ljubljanska Banka (NLB),offered his
resignation on April 20, only two months after he took the
position. The offer of resignation reflects rising tensions
within the governing coalition over NLB's decision to extend
the payment period on more than 150 million euros of loans to
Lasko Brewery, which some term a "tycoon loan," i.e., a loan
based on political connections and personal relationships
rather than business considerations. In the Slovenian
context, "tycoon" is a label applied to anyone who became
rich due in whole or part to political connections, and who
belongs to a party other than one's own. The bank's
supervisory board will decide whether to accept Veselinovic's
resignation by next week. The strains of the discussions and
arguments within the government are increasing pressure on
the Ministers of Economy and Finance; with the Minister of
Economy, who opposes the tycoon loans, threatening to resign.
End summary.

NLB Situation a Symptom of Political Illness
--------------

2. (SBU) Opinions differ on the root cause and ultimate
outcome of the controversy. There is a general consensus that
the controversy stems from NLB agreeing to extend loans
decried as "tycoon loans," whereas the government's recent
loan guarantee, enacted to combat the global economic crisis,
is supposedly aimed at loans for "developmental purposes."
The NLB case exemplifies the mix of state and private sector
in the Slovenian economy. Bosko Srot, the president of
state-controlled Lasko's managing board, is one of Slovenia's
most influential businessmen. Lasko itself is far more than
a brewery; its holdings include Mercator, Slovenia's largest
retail chain, as well as a number of other assets that make
it one of Slovenia's largest company. Other observers see
Veselinovic's resignation as a lost opportunity: he is an
experienced banker but is not from the same group of
high-level bank officials connected to the former ruling
party LDS who have controlled NLB since the early 1990s, and
his appointment was hailed in February as a badly-needed
breath of fresh air for the bank.


3. (C) A Vice President of the NLB Supervisory Board lamented
the chaos to Emboffs, wishing that he had resigned from the
board before all this happened. (The previous government
appointed the supervisory board, whose term concludes in
June.) He worried that these events will likely cause a step
backwards in the progress of bank privatization and agreed
that the case illustrates how large a stake the state still
has in the banking sector. He noted, however, that the
government's interests did not totally align with the
shareholders and faulted Veselinovic for explaining that the
loans were in the interests of "Slovenia," rather than for
the bank and its shareholders. He expressed concern that the
bank would make future decisions based on political and not
economic reasons.


4. (C) The Board member also defended the Bank. He explained
that the bank could not base its decision on the political
designation of whether a loan was a "tycoon loan" or a
"development loan" in deciding whether to extend the credit,
but needed to make that decision on business grounds. He
asserted that NLB is more conservative than other Slovenian
banks, and carries a smaller percentage of bad portfolios.
But, he said, the difference is that the media does not want
to discuss the situations in other banks; he speculated that
the media is focused on NLB for political reasons.


5. (C) After details of the loan extension were released on
April 17, Zares Party President (and Minister of Higher
Education) Gregor Golobic also criticized the bank and the
government for allowing the decision to go forward. Some
commentators see the move as Golobic's revenge for not having
had more say in the appointment of Veselinovic as NLB
president, since Veselinovic is a member of the LDS party
(both LDS and Zares are members of the coalition). April 21
headlines announced that LDS Party President (and Interior
Minister) Katarina Kresal told Golobic to "stop playing games
and get to work." Her comment came after press reports
described how her husband's law firm represents Lasko Brewery
and how the company has used political connections and
appeals to the "national interest" in order to secure loans
and other government aid. Others point to recent public
opinion polls showing rising dissatisfaction with Zares as
the motivation for Golobic's statements, as he is hoping that
his "anti-tycoon" rhetoric can halt the slide before the June
European Parliament elections.


Comment
--------------

6. (C) In our opinion, this brouhaha is distracting the
government from focusing on the underlying problems caused by
the global economic crisis. However, we expect that the
coalition parties, which have been meeting frequently this
week, will continue to exert their influence over the bank.
More troubling in the long term would be a move by the new
government to reverse gains made in privatization.
FREDEN