Bloomberg News

Slovenia Headed for ‘Difficult Period,’ Central Banker Says

October 04, 2011

(Updates with comment, markets in eighth-ninth paragraphs.)

Boris Cerni

Oct. 4 (Bloomberg) -- Slovenia is headed for a “difficult period” as the banking industry struggles to find financing and the economy slows because of Europe’s sovereign-debt crisis, central bank Governor Marko Kranjec said.

“The central bank will do all it can to stabilize the banking sector in the country as we’re headed for a difficult period,” Kranjec, who’s also a member of the Governing Council of the European Central Bank, told reporters in Ljubljana, the capital. “Slovenian banks can’t fund projects that are not sound and viable. Slovenian companies are highly indebted and are having difficulties finding good investment projects.”

Seven Slovenian banks had their credit rating cut by Fitch Sept. 29 on poor asset quality and after the ratings service lowered the credit score of the euro region member by one level to AA- because of risk to the stability of the banking system and on a worsening fiscal position.

Banks in the former Yugoslav nation, including the two largest Nova Ljubljanska banka d.d. and Nova Kreditna Banka Maribor d.d., are still reeling from the impact of the 2009 recession as companies continue to go bankrupt with record loan- loss provisions, mostly from the construction industry. That trend is likely to continue as the economic outlook worsens.

‘Slightly Different’

The methodology used by ratings companies are “slightly different” than that used by the central bank, which sees a better picture of the industry than the credit assessors, Kranjec said.

The country’s export-dependent economy will expand 1.3 percent this year, though risks from the debt crisis may damp growth and jeopardize the forecast, Damjan Kozamernik, head of research at the bank, told the same news conference. Gross domestic product will rise 1.7 percent in 2012 and 2.5 percent in 2013, he said.

GDP rose 0.9 percent in the second quarter on the year, compared with 2.3 percent in the first three months on slower growth in exports and industrial output.

“One of the credit rating agencies warned that the government collapse was one of the contributing factors in the rating cut,” Kranjec said today. “We can only hope the next administration will be better at sorting labor market overhaul, pension and health systems in order to improve the fiscal position.”

Slovenia was plunged into political uncertainty after the ouster of the government of Prime Minister Borut Pahor on Sept. 20. That and the worsening economic outlook prompted Moody’s to cut Slovenia’s credit rating by one level from AA on Sept. 23, a move that was followed by Fitch ratings a week later.

The extra yield investors demand to hold Slovenia’s bonds maturing in 2021 rather than similar-maturity German debt rose to a record today. The difference advanced to 351 basis points, or 3.51 percentage points, in Ljubljana at 2:47 p.m. from 343 basis points after the Moody’s credit score cut on Sept. 23, according to Bloomberg data. The spread was at 147 basis points on June 6 when voters rejected the pension system overhaul.

Slovenia’s banking industry had a profit of 48 million euros ($67.5 million) in the first seven months of the year, the central bank said last month. The core tier one capital ratio of the industry in the first half improved 0.9 percent to an average 9.9 percent, the central bank said.

--Editors: Alan Crosby, James Gomez

To contact the reporter on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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