Slovenia readied itself to raise the amount it can pay to fix its ailing banks to a sum still below that estimated by investors who suggest it could be as much as three times more than the Balkan state has set aside.
Struggling to calm investors and avoid an international bailout, Prime Minister Alenka Bratusek’s government approved an amendment to the law on public finances allowing it to raise the amount it can pay to fix its banks to 1.4 billion euros ($1.9 billion), from a previous 1.2 billion euros.
External auditors are scheduled to release results on Dec. 13 of stress and asset quality tests on the country’s largest lenders. They will show how much the government must pay to restore the banks to health, and Fitch Ratings estimates it could cost as much as 4.6 billion euros.
“This is surprising, if it ends up being confirmed, as most people have been working on a number three times as big,” Timothy Ash, an emerging-markets economist at Standard Bank Group in London, said in an e-mail today.
Slovenia’s dollar-denominated bonds maturing in 2022 extended a four-day rally, pushing the yield to the lowest level since May 28. The yield dropped 11 basis points, or 0.11 percentage point, to 5.655 percent at 1:55 p.m. in Ljubljana, according to data compiled by Bloomberg.
The government will “immediately” boost capital at banks such as Nova Ljubljanska Banka d.d. after the results are released, it said. NLB and two more majority state-controlled banks -- Nova Kreditna Banka Maribor d.d. and Abanka Vipa d.d. - - dominate a lending market burdened by bad debt equal to about a fifth of Slovenia’s annual economic output.
Slovenia could handle the bank rescue cost if it doesn’t exceed 2.5 billion euros, Carlos Ortiz, an economist at UniCredit Bank AG in London said in a Nov. 5 report, while Abbas Ameli-Renani from Royal Bank of Scotland Group estimated the sum could be about 3 billion euros.
Ameli-Renani said a Nov. 15 private placement sale of 1.5 billion euros in bonds had reduced the need of outside aid, while analysts at Hypo Alpe-Adria Bank in Zagreb, Croatia said the risk of Slovenia tapping the European Stability Mechanism, the euro area’s permanent rescue fund, had been pushed into next year.
“The next few days will be very crucial to see how the government will weigh its options over the banks’ recap strategy -- whether it would recap banks by itself or use the ESM aid,” Matjaz Music, director of economic research at Hypo Alpe Adria Bank in Ljubljana, said in an e-mail.
The Adriatic nation, which adopted the euro in 2007, plans to sell bonds early next year, as yields on its debt decline, Bratusek said in an interview yesterday. She said yields should come down further once the bank system is repaired.
The bank recapitalization and the transfer of bad loans to the state-run bad bank “must be done in the shortest time possible and, if possible, in 2013,” the government said today. Bad-loan transfers of about a nominal 4 billion euros in bad debt and the capital boost should happen at same time.