Slovenian Banks Under Strain as Bad Loans Advance

Bad loans at Slovenian banks advanced in April to more than 6 billion euros ($7.4 billion), putting more pressure on the fragile banking industry, the government’s economic institute said.

Liabilities that are unlikely to get repaid in full at Slovenian banks, including Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor (KBMR) d.d., reached 12 percent of total banking-industry exposure, the institute in the capital Ljubljana said in an e-mail today. Non-performing loans in the manufacturing industry in the first four months rose more than in all of last year, it said.

“Along with the construction industry and bad loans tied to merger activity in the past, the risk of banks’ bad liabilities spreading to other industries could further worsen the situation in the banking system,” institute director Bostjan Vasle said, according to the statement.

Economists from London to Warsaw have said the former Yugoslav republic will probably join Greece, Ireland, Portugal, Spain and Cyprus in asking for assistance to prop up its ailing banking industry. Finance Minister Janez Sustersic said in Brussels yesterday that the domestic banking system “isn’t endangered and we are not considering any aid.”

Slovenian banks are relying on loans from the European Central Bank for liquidity as surging borrowing costs for the state limit their wholesale funding options.

The yield on the benchmark bond rose above 7 percent earlier this week when officials sought to ease concern that Slovenia may become the sixth euro-zone nation to seek an international bailout.

Falling Yield

The yield on Slovenia’s 4.375 percent bond maturing in January 2021 fell for a second day, declining 57 basis points, or 0.57 percentage point, to 6.77 percent at 11:39 a.m. in London.

It reached 7.38 percent on July 9, the most since Jan. 16, based on the closing pricing, according to data compiled by Bloomberg. The bond price rose 32.11 euros per 1,000-euro face amount to 84.880.

Nations such as Greece and Spain were forced to ask for international aid after the yield on their benchmark bonds surged to over 7 percent.

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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