Slovenia Needs to Say How It’ll Avoid Cyprus Fate, Kranjec Says
Slovenia’s government must detail its plan to salvage the economy and stabilize banks to avoid having to ask for an international bailout, Banka Slovenije Governor Marko Kranjec said.
Prime Minister Alenka Bratusek’s two-week-old Cabinet must “show it’s serious” on resolving the nation’s troubles, said Kranjec, adding he remains “worried” about the outlook in 2014. Kranjec, who’s also a member of the European Central Bank’s Governing Council and whose term is due to end in July, was speaking to reporters in Ljubljana today.
“The government has a great responsibility to stabilize the financial and economic woes of Slovenia,” Kranjec said. “A lot of uncertainties on Slovenia will depend on what the government will do next. We expect the government to present details of its economic program.”
Slovenia, grappling with its second recession since 2009, is trying to avoid becoming the sixth euro nation to ask for a bailout. Investor concerns that the government will fail to implement a 4 billion-euro ($5.1 billion) plan to prop up banks and lose access to financing abroad boosted borrowing costs at a time when the Alpine nation is looking to tap bond markets.
The yield on Slovenia’s dollar-denominated bonds maturing in 2022 fell 9 basis points to 6.01 percent at 1:27 p.m. in Ljubljana today, data compiled by Bloomberg show. The yield climbed to a record 6.382 percent on March 27.
Slovenian bonds are “attractively priced” for investors who can tolerate near-term volatility as the parallels between it and Cyprus are exaggerated, JPMorgan strategist Gianluca Salford wrote in a client note today.
Slovenia’s recessions have boosted bankruptcies and pushed bad loans to about a fifth of economic output. Banks such as Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d. have been hit by the recession and the collapse of the construction industry, the pre-crisis driver of growth.
Nova Kreditna, which had a 205 million-euro 2012 loss, was one of four banks that failed last year to meet European capital targets set by regulators. Bank of Cyprus Pcl, Cyprus Popular Bank Pcl, known as Laiki Bank, and Italy’s Banca Monte dei Paschi di Siena SpA (BMPS) were the others.
While none of Slovenia’s banks have required emergency liquidity assistance, local banks have borrowed “a lot” from the European Central Bank, Kranjec said today, without giving further details. The central bank will act if its sees urgent capital is needed, he said.
Bratusek last week pledged that her government will press ahead with austerity measures to improve public finances, which she said were in “bad shape” and rebuild the banking system.
Slovenia needs ‘credible measures’ to avoid aid, Janez Fabijan, a central bank vice governor, told reporters today in Ljubljana.
The economy will contract 1.9 percent this year and grow 0.5 percent next year, the central bank said earlier today in a statement. GDP contracted 3 percent in the fourth quarter.
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