Slovenia must either overhaul or shut down its over-indebted companies to revive the economy after fixing the financial industry, central bank Governor Bostjan Jazbec said.
Slovenian banks are expected to perform well in a European Central Bank assessment, Jazbec said in a phone interview today from the capital Ljubljana. The country, which has been using the euro since 2007, spent 3 billion euros ($4.1 billion) to prop up its top three banks in December, reducing concern among investors it may turn to outside assistance.
“The focus must now be on lowering the corporate debt level in a way that companies are either restructured or simply closed down,” said Jazbec, who is also an ECB Governing Council member. “This might help spur a new growth cycle of the economy, since banks are reluctant to lend to the over-leveraged companies.”
The Adriatic nation started repairing its bank industry with a capital boost for the three largest banks and moving toxic loans to a special government agency, known as the bad bank. Now, the focus has shifted to the over-leveraged corporate sector, which would need as much as 5 billion euros to regain its competitive edge, the central bank has said.
The ratio between debt and equity among Slovenian companies stood at 135 percent in 2012 and was reduced to 133 percent at the end of June 2013, according to Bojan Ivanc, an economist at Slovenia’s Chamber of Commerce and Industry. That compares with 107 percent in Austria, 116 percent in Germany and 118 percent in Spain, he said by phone today.
Supermarket chain Mercator Poslovni Sistem is among the most indebted companies with total debt below 1 billion euros.
The yield on Slovenia’s 10-year Eurobond extended a six-day decline, dropping three basis points, or 0.03 percent, to 4.08 percent at 2:25 p.m. in Ljubljana, the lowest level since Nov. 2010, according to data compiled by Bloomberg.
The European Commission, the European Union’s executive arm, yesterday improved the outlook for Slovenia, saying the economy will shrink 0.1 percent this year from the November forecast of a 1 percent decline.
“Exports have adapted to the competitive challenges of European markets, where Slovenian companies export the most,” Jazbec said.
Main exporters include appliances maker Gorenje d.d., a unit of Renault SA (RNO) and Krka d.d. drugmaker.
Slovenia’s budget shortfall has ballooned to just below 15 percent of gross domestic product last year on account of the bank industry repair, the Commission said. The deficit will shrink to 3.9 percent of GDP by the end of 2014 and to 3.3 percent by the end of 2015, according to the forecast.
Slovenian banks are set to transfer as much as 4.5 billion euros of gross toxic loans to the bad bank in the clean-up. Jazbec said one of the reasons for the “slow” process could be the state’s ownership of the Bank Asset Management Company as transfers are supervised by the European Commission.
After national stress tests and asset quality review in December for the 10 lenders in Slovenia, Nova Ljubljanska Banka d.d., Nova Kreditna Banka Maribor d.d. as well as the Slovene Export & Development bank, or SID Banka, are subject to the European Central Bank’s Comprehensive Assessment before the Frankfurt-based rate-setting institution takes over the supervision of lenders in the euro region in November.
The bank review of external auditors in December showed the industry would need 4.8 billion euros in an adverse scenario.
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