BRUSSELS, July 25 (Reuters) - Bailed-out German lenders BayernLB and NordLB gained EU regulatory approval on Wednesday for their restructuring schemes, which will shrink their operations to offset billions of euros granted by German authorities.
BayernLB, Germany's second-biggest public-sector bank, agreed earlier this month to repay 5 billion euros in state aid by 2019 and halve the size of its balance sheet following three years of negotiations with the European Commission.
The Commission, which acts as competition regulator in the 27-member European Union, said it approved the support that had been given -- as long as BayernLB stuck to its conditions.
"Due to the large aid amounts and the high number of measures involved it has been a long and complex process. However, BayernLB's final restructuring plan shows in an unambiguous manner that the company has learnt lessons from the past," EU Competition Commissioner Joaquin Almunia said in a statement.
"The repayment schedule which we impose ensures that the bank does not keep more public funds than it needs."
Under the revamp, BayernLB will cut its balance sheet by about half from its 2008 position. And it will have to reduce its exposure to international project finance and international real estate.
The bank's problems began in 2008 when its investments went bad due to the financial crisis, forcing the state of Bavaria to pump in 10 billion euros in fresh capital.
The Commission also said on Wednesday it had given approval for about 3.3 billion euros of restructuring aid granted to NordLB, the No. 3 public-sector bank.
"The Commission found that the restructuring plan submitted by the German authorities ensures that the bank is viable, that the public authorities that granted the aid receive adequate remuneration for it and that the bank uses the public support to strengthen its capital in the coming years by not paying dividends to shareholders and not making acquisitions," it said.
The bank will shift its business to more stable segments and must contribute to the costs of the restructuring by divesting profitable subsidiaries.
NordLB will be banned from paying out dividends to its owners for two years and have to shrink its balance sheet to 200 billion euros in 2016 from 228 billion in 2011.
The European Commission has asked for these conditions after its state owners strengthened the bank's capital cushion by injecting fresh cash and swapping debt-equity hybrids for hard equity. Additionally, the state owners have granted NordLB a guarantee to shield assets worth 15 billion euros against possible losses.
Scores of bailed-out banks across the 27-country European Union have had to restructure in the last four years to ensure they do not have an unfair advantage over rivals who were not given state support. (Reporting by Foo Yun Chee; editing by Rex Merrifield)