The Bank of Slovenia estimated last December that the shortfall would be 388 million euros. It gave Banka Celje six months to strengthen its capital.

The bank tried and failed to find a strategic investor to provide the capital and now the state has to step in instead.

Slovenia poured more than 3 billion euros into local banks last year to prevent them from collapsing under a pile of bad loans. This allowed country to avoid an international bailout.

The government plans to merge Banka Celje with another state-owned bank Abanka, which was also rescued by the state last year. The merged bank would be the third largest in the country and could be sold off in coming years.

In the past, Slovenia has been reluctant to sell its banks so the state still controls more than half of the country's banking sector.

The government will increase Banka Celje's capital by 95 million euros in cash and another 95 million euros in state bonds. The increase will take place after it is approved by the European Commission, which is expected in coming days, the government said on Thursday.

Reuters