Slovenia requesting financial assistance from its European partners is an option if yields on the euro-area nation’s government bonds prove unsustainable, central bank Governor Bostjan Jazbec said.
Results of a stress test of the country’s banks, which have bad loans of almost 8 billion euros ($10.9 billion), are due by the end of next month and will make the situation clearer and give authorities an opportunity to move quickly to fix the lenders, Jazbec told reporters in Ljubljana today.
The debate is intensifying after Prime Minister Alenka Bratusek said Sept. 26 the country may consider seeking outside aid. Bratusek today said the nation wouldn’t seek a bailout, while Janko Medja, the chief executive of state-owned Nova Ljubljanska Banka d.d., the nation’s biggest lender, said such a request wouldn’t be “a catastrophe” as it would bring “more decisive” measures to lower government spending.
“There is no need to speculate if Slovenia will need a bailout,” said Jazbec, who is also a member of the Governing Council of the European Central Bank. “Asking for a bailout in case of high and unsustainable yields would be cheaper, but we are sure these troubles in our banks can be solved on our own.”
The yield on Slovenia’s dollar-denominated bonds maturing in 2022 declined 2 basis points, or 0.02 percent to 6.518 percent at 1:43 p.m. in Ljubljana, compared with a record-high 7.52 percent in June, according to data compiled by Bloomberg. Countries including Ireland and Portugal were forced to seek outside aid after yields on their government notes surpassed the 7 percent mark.
Slovenia’s export-driven economy will shrink 2.6 percent this year, the central bank said in a report today, revising its previous estimate of a 1.9 percent contraction. Gross domestic product will advance 1.4 percent in 2015 after dropping 0.8 percent next year, the bank said.
Bratusek has pledged to support state-owned banks by raising their capital and shifting non-performing loans to a bad bank, a move delayed by a dispute with the EU over banks’ capital needs and the value of their bad assets.
“Slovenia will move quickly to re-capitalize banks and transfer bad loans as soon as these results are published,” Jazbec said. The central bank will ensure the stability of the financial system as the results are released, he said.
Slovenia has enough cash reserves to last until the end of the year, Finance Minister Uros Cufer has said.
Debt-servicing costs have jumped to 2.1 percent of economic output this year from 1.2 percent in 2008, according to calculations by Jaromir Sindel, an economist at Citigroup Inc. in Prague.
The government may have to borrow as much as 4 billion euros by the of next year, based a 2.5 billion-euro bank recapitalization cost, which would be higher than the 1.2 billion euros the government set aside, JPMorgan Chase & Co. (JPM) economists Gianluca Salford, Alan Bowe and David Mackie in London said in an e-mailed note today.
“We do not see public debt sustainability issues, but the amounts involved raise the risk of a liquidity crisis that might require a bailout,” Salford wrote.
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