Slovenia announced on Thursday that its banks would be paid about 1.6 billion euros for transferring their most troubled loans to the bad bank. Torbjörn Mansson, head of the bad bank, told journalists on Monday banks would be paid with a combination of two and three year bonds.

"We are structuring the bond that it should be acceptable in the system, banks can use it to secure liquidity, fund new businesses," he said. Banks can pledge high quality bonds with the European Central Bank in exchange for cash, which they can then lend.

Slovenia's eight largest banks have to boost their capital by 4.8 billion euros as a result of long-awaited stress tests published last week. Slovenia said the money could be found without a sovereign bailout.

In documents published on Monday, the bad bank said it would not be a long-term owner of non-performing loans and would sell them as soon as soon as the assets were "interesting to the market".

However, the bad bank's asset manager, Janez Skrubej, said: "Investors should not get the impression we are under pressure to sell."

The two largest banks, NLB and Nova KBM, will transfer their bad loans by the end of December, Mansson said, and the first bond of 1.1 billion euros will be issued to them. The third largest, Abanka will not transfer its bad loans until 2014, since its restructuring plan is still awaiting approval from the EU.

($1 = 0.7283 euros)

(Writing By Laura Noonan, Editing by Louise Heavens)

By Zoran Radosavljevic