The cantonal bank of Vaud (BCV) is in big trouble. The local government has to inject SFr1.25 billion to shore up the bank's flagging capital base.

Bailing out the troubled bank - Switzerland's fourth largest - has become almost routine for the canton's long-suffering taxpayers.

BCV is to issue participation bonds for the money. SFr850 million will be covered by provisions and the balance will be new cash stumped up by the canton.

It is the second re-capitalisation the bank has needed this year. Last March, BCV increased its credit risk provision to SFr1.7 billion, requiring SFr600 million in new funds, half of which came from the cantonal government - the majority shareholder.

BCV's problems are not all of its own making. In 1993, it had to take over SFr3.5 billion in assets and liabilities of the collapsed Banque Vaudoise de Crédit to avert a "major disaster for the canton's economy".

Aftershocks

The aftershocks are still being felt. Last December, an audit revealed that BCV had debts of SFr2.3 billion.

The bank is also failing to balance its books. It posted a loss of SFr82 million in the first half, following a dismal year in 2001 when net losses reached SFr381 million.

In a statement commenting on the 2001 results earlier this year, BCV said depreciation, value adjustments, provisions and losses totalled SFr1.33 billion as a consequence of the measures taken to strengthen credit risk provisions.

The group had said its goal for this year was to improve gross profit by ten to 15 per cent over the 2001 figure of SFr330 million.

BCV blames many of its problems on the 1990s downturn, which required the Swiss banking system to generate provisions in excess of SFr90 billion between 1991 and 2000.

In the red

BCV is not alone among cantonal banks in falling into the red. Bern's was "forced to" dispose of SFr6.5 billion worth of bad loans and the banks of Solothurn and Appenzell Outer Rhodes were sold to UBS.

Analysts say the problems of many cantonal banks stem from voters' reluctance to free them from public control.

Many, although not BCV, enjoy a guarantee from the cantonal government, and are therefore insulated from the dangers of bankruptcy.

As recently as last year, Vaud voters rejected a proposal to make the BCV fully private. It has proved to be a costly decision.

swissinfo

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