Slovenian banks are “highly vulnerable” to further credit deterioration and refinancing risk, the International Monetary Fund said.
Banks including Nova Ljubljanska Banka d.d. and Nova Kreditna Banka (KBMR) Maribor should be recapitalized in the amount of around 5 percent of the euro region nation’s gross domestic product to be able to sustain a double-dip recession, the IMF said today in a Financial System Stability Assessment.
“Strengthening the financial condition of banks should be the short-term priority,” the Washington-based lender said in the report. “A structural adjustment in the balance sheets is needed for banks to become less dependent on wholesale or the Euro-system’s financing and a stronger bank capitalization would reduce downward pressure on the sovereign rating.”
Slovenian banks, which rely on the European Central Bank loans for financing, are burdened with surging bad loans as the export-dependent economy slips into its second recession in three years. Prime Minister Janez Jansa has embarked on an economic overhaul, including the recapitalization of the state- owned banks. These efforts may be hampered by a threat of a referendum called by trade unions and opposition leaders.
Slovenia is rated Baa2 at Moody’s Investors Service, the second-lowest investment level, while Fitch Ratings has an A-and A at Standard & Poor’s. All three companies keep a negative outlook on their assessments.
The Adriatic nation is ready to sell its entire holding in Nova Ljubljana Banka, Finance Minister Janez Sustersic has said. NLB, based in the capital Ljubljana, needs a second capital boost of 375 million euros ($456 million) as the country’s biggest lender is set for a fourth year of losses. Nova Kreditna bank may also be sold to outside investors.
“The privatization would help address the long-standing governance weaknesses of these banks,” the IMF said in today’s report. “Reducing government influence on the day-to-day operations and lending decisions of banks would help improve the risk management practices and the efficiency and stability of the banking system.”
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