Bloomberg News

Cleaning ‘Toxic’ Assets Slovenia’s Primary Concern, Moody’s Says

April 16, 2013

Quickly cleaning up Slovenian banks and transferring “toxic” assets to a new institution designed to deal with them should be the government’s main goal, Moody’s Investors Service said.

Slovenia, the euro-area’s fourth-smallest economy, is trying to avoid becoming the currency-region’s sixth member to seek a bailout after international lenders agreed to help Cyprus. The Cabinet is offering 500 million euros ($657 million) in 18-month Treasury bills today as it tries to raise confidence that it can recapitalize banks without seeking outside aid.

While Slovenia’s situation isn’t as bad as Cyprus, the “trends are certainly negative,” Jaime Reusche, a sovereign- debt analyst at the ratings company, said in an April 15 interview in Prague.

“We’re looking for greater progress towards stabilizing the banking system through the creation of the bad bank, and through the implementation of its mandate,” Reusche said. “The priority is cleaning up the toxic assets in the banking system, that’s the primary concern.”

The cost of protecting Slovenian debt against non-payment using credit-default swaps fell one basis point to 377 yesterday, from a six-month high the previous day, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

Slovenia will need more than the two years envisioned by the previous government to narrow a budget deficit that reached 3.7 percent of gross domestic product in 2012, according to Prime Minister Alenka Bratusek. This year’s shortfall will widen to 5.1 percent, the European Commission predicts.

To protect the economy, the planned bank-recapitalization plans are “the No. 1 priority for the government,” Bratusek has said. Funds for the bank rescue may come from the sale of state assets announced by Bratusek on April 12. Details will be submitted to lawmakers in the next 10 days, she said.

“The government seems committed to moving forward with the bad bank, and the prime minister has reinforced her commitment towards fixing the issues in the banking system,” said Reusche. “They’re looking at the problems with a realistic perspective. There is the intention and willingness to resolve those problems, and this is something we take into account for maintaining the investment-grade rating.”

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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