Bloomberg News

Slovenia Begins Bank Cleanup Confident It Can Avoid Bailout

December 20, 2013

Slovenia started cleaning up its banking industry after a stress test showed the nation can recapitalize its lenders without outside assistance.

The Bank Asset Management Company will receive a nominal 3.2 billion euros ($4.4 billion) of bad loans from Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d., the government agency said today in an e-mailed statement from the capital, Ljubljana. In exchange, NLB will get 622 million euros of government-guaranteed bonds, while Nova Kreditna will receive 390 million euros of government notes that could be eligible for financing with the European Central Bank. The two banks and Abanka Vipa d.d. got a combined 3 billion-euro capital boost from the government.

“I’m actually positively surprised the authorities are moving so quickly on implementing the recapitalization and asset transfers, said Abbas Ameli-Renani, an emerging-markets economist at Royal Bank of Scotland Group Plc. ‘‘This will allow the two largest banks to head into 2014 with much healthier balance sheets.’’

Bad loans in Slovenia, the first former communist nation to adopt the euro in 2007, represent more than a fifth of economic output and almost pushed the country into a bailout. Stress test results show banks need 4.8 billion euros of fresh capital. The Slovenian government, which has built up a cash buffer of more than 5 billion euros, says it can avoid an international bailout.

The yield on Slovenia’s government notes maturing in 2022 dropped 2 basis points, or 0.02 percentage point, to 5.434 percent at 2:46 p.m. in Ljubljana, according to data compiled by Bloomberg.

‘Congratulatory Notes’

Slovenia is no more seen as a ‘‘problematic’’ nation that may need outside assistance, Prime Minister Alenka Bratusek said today in Brussels after talks with European Union leaders.

‘‘Today, I was sitting at the Council without colleagues asking if Slovenia will manage to solve these issues on its own, and received lots of congratulatory notes on a job well done,’’ Bratusek told reporters. ‘‘We have also completed the recapitalization of our banks and problems in our banks have now really been solved, and now we have work do to on the economy.’’

Slovenia’s export-oriented economy is forecast to recover only in 2015, according to the central bank and the International Monetary Fund. Gross domestic product was unchanged in the third quarter from the previous three-month period and is set to shrink an annual 2.6 percent this year and 0.7 percent next year, the central bank says.

‘‘Given that domestic demand and the banking system will continue shrinking for some time yet, Slovenia’s recovery is very dependent on factors outside its control,” James Howat, an economist at Capital Economics in London, said in an e-mail. “Even if the government manages to stay in power and push through the rest of its reforms, there are obviously still risks.”

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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