European authorities deserve credit for pushing through reform of Slovenia’s banking sector.
Much has been said and written in recent years about the shortcomings of the European Union in the banking sphere, most of it entirely justified. By any measure European authorities have a fairly dismal record when it comes to creating the profitable, competitive banking sectors that member states and their economies urgently need.
One area in which the EU has consistently shown both its value and its teeth, however, is over the question of state aid to banks.
Perhaps the best example of this is Slovenia. In the wake of a banking crisis in 2013, five of the country’s state-owned lenders came under Competition Commission scrutiny. The two smallest were closed, while terms were set for the restructuring and privatization of the rest.
This was no small task. Between them, the three lenders – NLB, NKBM and Abanka – accounted for nearly half of all banking assets in Slovenia. The problems in the sector had been caused by years of bad governance, particularly in relation to lending to state-owned enterprises. Opposition to reform among local policymakers was notoriously stiff.
Yet four years on, great progress has been made. NKBM has already been sold, to US private equity group Apollo Global Management in 2015. Now NLB is on the block. The largest Slovenian lender, which accounts for around one third of the local banking market, is due to be listed in London and Ljubljana in June.
It is, of course, possible that all this would have happened without the spur of EC deadlines. Yet one has only to look south and east from Croatia to find ample evidence to the contrary.
The privatization of Komercijalna Banka in neighbouring Serbia has been promised for years. Ukraine’s public-sector banks were a byword for bad governance and inefficiency, at least until the Maidan revolution in 2014. Belarus’s banking sector is in a state of semi-permanent crisis as a result of decades of ill-advised state-directed lending.
The fact is that, without external pressure, it will always be possible to find a reason for putting off reform. It will be politically sensitive. It will interrupt the flow of funding to key industries. It will destabilize a fragile banking sector. Valuations are too low for privatization. It will be a bad deal for taxpayers. And public money will continue to be poured into badly managed, nontransparent institutions.
Of course, the EU is not the only body that can apply pressure. Multilateral donors such as the IMF and EBRD can – and do – push governments to reform and privatize their banks. Yet their influence is limited by their lack of legal status in their countries of operation.
The EC is in the only institution that can force change on local policymakers and bankers – and has repeatedly shown that it is prepared to do so. The value of that should not be underestimated.