Bloomberg News

IMS Says Slovenia Needs Bank Overhaul to Exit Recession

November 29, 2012

Slovenia must recapitalize its banks and overhaul the pension system and labor market to help pull its economy out of a recession, the International Monetary Fund said.

“Bank restructuring, recapitalization, and privatization are needed to break the vicious spiral of deleveraging and economic contraction,” the Washington-based lender said in a report today after a visit in October. “With banks under pressure and the corporate sector highly leveraged, it has become critical to attract fresh external equity capital.”

Investor concern has increased over Slovenia’s ailing state-owned banks amid speculation the Adriatic nation may ask for an international rescue package to prop up its financial industry. Nova Ljubljanska Banka d.d., Nova Kreditna Banka Maribor (KBMR) d.d. and Abanka Vipa, the three biggest banks by assets, are seeking fresh funding to bolster their capital after it was eroded by a surge in bad loans as Slovenia enters its second recession in three years.

The Adriatic nation’s economy (SVGDCYOY:US) shrank 3.2 percent in the second quarter from a year earlier after growing 0.6 percent in 2011. The decline intensified this year as euro-area growth decelerated, external financial conditions worsened, and private consumption growth turned negative, the IMF said.

Planned Referendum

The government’s plan to recapitalize the industry is being delayed by a referendum motion from a trade union. If voters reject the plan, Slovenia would be forced to seek aid as no similar legislation can be implemented for a year, Finance Minister Janez Sustersic said Oct. 31.

“While the government has set the general goals, the authorities are still finalizing the details of the bank asset- management company, the pension and labor-market reforms and privatization,” the IMF said.

The Slovenian government, which indirectly owns 62 percent of Nova Ljubljanska Banka, the country’s biggest bank, is ready to sell its entire stake to investors instead of keeping a 25 percent plus one share, Finance Minister Janez Sustersic said yesterday. NLB as the bank is known, wants to raise 375 million euros ($487 million) by selling shares, its second capital boost this year. Nova Kreditna Banka Maribor and Abanka Vipa, the second and third-biggest banks by assets, are also seeking funding to strengthen their capital positions.

Prime Minister Janez Jansa’s government is working to lower the budget gap to about 4 percent of economic output from 6.4 percent in 2011. The export-driven economy is forecast to shrink 2.25 percent this year, according to the IMF.

“Growth will resume in the second half of 2013 led by the projected euro area recovery,” the IMF said. “An intensification of the euro-area crisis could further restrict access to external finance and banks’ funding and capital strains may lead to an extended balance-sheet recession and to a further weakening of the economy.”

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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