Slovenian Bank Hole Increases by Rescue Delay, EBRD Says

The size of Slovenia’s bank industry rescue grows as transfers of failed loans to a state-run “bad bank” are delayed, the European Bank for Reconstruction and Development’s chief economist said.

After the cleanup, the London-based lender may invest in Slovenian banks including Nova Ljubljanska Banka d.d. and other state-owned companies the government has pledged to sell to trim the budget deficit, EBRD Chief Economist Erik Berglof said in an interview yesterday at a business forum in Bled, Slovenia.

Burdened by non-performing loans equaling about a fifth of the economy, the Adriatic nation’s mostly state-owned banks pushed Slovenia to the brink of a bailout in March after Cyprus’s rescue triggered a sell-off in weaker euro-region assets. A dispute with the European Union over banks’ capital needs and the value of their bad assets forced Slovenia to miss a June deadline to start moving overdue loans to a state agency.

“What we know is that the size of the hole is increasing with each delay,” Berglof said. “I have no information to suggest there would be further delays. If there were, I would be worried about that.”

The yield on Slovenia’s dollar-denominated bonds maturing in 2022 declined 8 basis points, or 0.08 percentage point, from yesterday, to 6.63 percent at 9:27 a.m. in Ljubljana, data compiled by Bloomberg shows.

Europe-Wide Trouble

Cumulative 2013 losses in Slovenia’s bank system reached 215.6 million euros ($284 million) in June, doubling from May, according to data the central bank released yesterday. Loan-loss provisions rose to 7.54 billion euros, or 16.3 percent of all outstanding loans, the central bank said.

Eastern Europe and other emerging markets “are being hit very badly” by expectations of the U.S. Federal Reserve’s tapering of stimulus, while stress tests at European lenders “could put new issues on the table,” Berglof said.

Banks led by UniCredit Spa, Raiffeisen Bank International AG and Erste Group Bank AG continued to reduce exposure to former communist Europe in the first quarter even as deleveraging slowed last year from 2011, he said. That may continue as European banks still need to trim balance sheets by as much as 1.5 trillion euros ($2 trillion), according to a July Ernst & Young LLP report.

“The banking sector is in trouble Europe-wide,” Berglof said. “We are confident that there are considerable holes that need to be filled. I don’t see as an immediate concern that there will be a collapse of banks. The main concern is that they are capable of lending.”

Losses Deepen

Slovenia’s transfer of bad loans has been delayed until October, Matej Krumberger, the director of bank supervision at Slovenia’s central bank, said in an Aug. 20 interview. The government’s estimated 1.2 billion-euro pricetag for the bank rescue could rise to 1.5 billion euro, central bank Governor Bostjan Jazbec said on news agency STA on Aug. 28.

After almost two decades of refusing to sell many of its state-owned banks and other companies, Slovenia has pledged to reduce the presence of the state in the economy, which is a drain on public finances, by selling assets to restore market confidence and attract investors.

The EBRD may invest in Slovenia’s lenders, Berglof said.

“What’s important for us is that there is a framework that we know what are the rules of the game, what are the expectations from the government, the banks and the international institutions,” Berglof said.

Other Assets

The EBRD would look into other assets, he said, provided there is more openness and transparency among banks, companies and the state.

State holding company Slovenska Odskodninska Druzba d.d. agreed on Aug. 30 to sell a 73 percent stake in state-owned former telecommunications monopoly Telekom Slovenije d.d. and invited 15 companies to advise.

It is one of 15 planned sales of state-owned firms, including Nova Kreditna Banka Maribor d.d., to cut a budget deficit set to widen to 7.9 percent of total output from 4 percent in 2012. A detailed sale time line will be available at the end of the month, Prime Minister Alenka Bratusek said yesterday, according to an e-mailed statement from her Cabinet.

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