UPDATE 1-Slovenia sells Abanka to NKBM for 444 mln euros

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LJUBLJANA, June 20 (Reuters) - Slovenia has sold the country's third largest bank, state-owned Abanka, to No. 2 lender Nova KBM (NKBM) for 444 million euros ($501 million), state privatisation body SDH said on Thursday.

Slovenian Sovereign Holding (SDH) said the transaction was expected to be completed by the end of the year, pending necessary approvals.

Nova KBM is a unit of U.S. investment fund Apollo Global Management, which owns 80% of the bank, while the European Bank for Reconstruction and Development (EBRD) holds the other 20%.

"This historic moment is an extraordinary opportunity for us and Abanka to create a strong united bank which is positive for the Slovenian economy," NKBM head John Denhof said in a statement after signing the sales deal.

NKBM and Abanka together will hold a market stake of 22.5%, according to balance sheet assets, just behind the country's largest bank Nova Ljubljanska Banka (NLB) with around 23%.

The government controlled more than 50% of the banking industry in 2013 when the country narrowly avoided an international bailout for its banks with a large government capital injection in several local banks, including Abanka.

The government promised to sell most banks in exchange for European Commission's approval of state aid to the banks in 2013 and 2014.

Abanka was the last of the state banks on sale. The government controls still owns about 12% of the banking sector as it owns development bank SID and a quarter of NLB.

($1 = 0.8864 euros) (Reporting by Marja Novak; Editing by Jan Harvey and Edmund Blair)