Slovenia’s planned so-called bad bank to exchange non-performing loans from lenders such as Nova Ljubljanska Banka d.d. for government-guaranteed bonds would raise state debt, central bank Governor Marko Kranjec said.
“We are supporting government efforts to stabilize the banking system, especially in those banks in which the state is a majority owner,” Kranjec, who’s also a member of the Governing Council of the European Central Bank, told reporters in Ljubljana today. “Any bank recapitalization would increase the government debt either through guarantees or by issuing government securities later on.”
Slovenia plans to guarantee as much as 4 billion euros ($5.17 billion) to clean up lenders’ bad loans by creating a special government agency, while the government would also inject as much as 1 billion into banks directly, Finance Minister Janez Sustersic has said. Lawmakers in Ljubljana debated the bank recapitalization plan on Sept. 28 and are set to vote on it tomorrow.
The government of Prime Minister Janez Jansa is working on stabilizing the banking system and overhauling the economy as the former Yugoslav republic strives to avoid joining Portugal, Ireland and other euro-region countries that were forced to seek an international bailout. Slovenia saw its debt level balloon to 47. 6 percent at the end of last year from 23 percent since its euro adoption in 2007.
The country’s debt is forecast by the European Commission to rise to just below 55 percent by year-end and to 58 percent in 2013.
The Alpine nation’s budget gap will probably be cut to below the 3 percent threshold by the end of next year with some additional savings measures, Damjan Kozamernik, the head of research at the country’s central bank, said today.
Slovenian banks are struggling with bad loans as the economy heads for a second recession in three years and more and more companies file for bankruptcy. Gross domestic product will shrink 1.8 percent this year and 0.7 percent next year before expanding 0.8 percent in 2014, the central bank said.
Kranjec said he prefers direct recapitalization of lenders such as Nova Ljubljanska and Nova Kreditna Banka Maribor d.d. to creation of a “bad bank” and reiterated that Slovenia “should sell its state-owned assets as soon as possible.”
The European Central Bank should not impose extra economic conditions on nations using its bond-buying mechanism, and the International Monetary Fund shouldn’t have an oversight role, Italian Prime Minister Mario Monti said Sept. 28.
“As much as I can judge from media reports, most of the countries are very reluctant to ask for an international financial and economic aid,” Kranjec said. “If Mr. Monti said that, he probably knows what he’s talking about as he’s familiar with the situation.”
Countries such as Italy and Spain are reluctant to request the bond buying they championed because of uncertainty about what conditions the central bank would seek to impose, Monti said.