Slovenia Pledges Austerity in Bid to Avoid Same Route as Cyprus

Wednesday, 27 Mar 2013 06:57 AM

 

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Slovenia’s week-old government pledged to continue with austerity measures to avoid becoming the euro region’s sixth member to require a bailout.

Prime Minister Alenka Bratusek, in her first major policy speech since taking office, told Parliament that while the situation in the Alpine nation isn’t comparable with Cyprus, state finances are still in “bad shape” and the Cabinet is working “vigorously” to rebuild ailing banks and considering tax increases.

European Union officials are striving to contain a debt crisis that prompted Cyprus to join Greece, Portugal, Ireland and Spain in agreeing on a bailout. Slovenian banks such as Nova Ljubljanska Banka d.d. are struggling with surging bad loans that equal a fifth of economic output, fueling investor fears that it may be next to seek help.

“Slovenia won’t need aid, we can do this on our own,” she said today in Ljubljana. “Our banking system is stable and safe and comparisons with Cyprus aren’t valid. Deposits here are safe and the government is guaranteeing them.”

Yields Rise

Concern that Slovenia’s banking woes will trigger a bailout request boosted the yield on the country’s benchmark dollar-denominated bonds, which mature in 2022. The yield rose 23 basis points to an all-time high of 5.97 percent at 11:15 a.m. in Ljubljana, data compiled by Bloomberg show.

With the European Central Bank threatening to cut off emergency financing for Cyprus’s tottering banks, Cypriot leaders agreed March 25 to shut the country’s second-largest lender, Cyprus Popular Bank Plc, also known as Laiki Bank, as part of a 10 billion-euro ($12.8 billion) emergency aid accord with the EU and the International Monetary Fund.

Slovenia needs about 3 billion euros of funding this year, while banks need an additional 1 billion euros of fresh capital, the Washington-based IMF said last week. The previous government of Janez Jansa, which fell Feb. 27 amid a corruption scandal, had proposed a 4 billion-euro plan to deal with bad assets at financial institutions that Bratusek pledged to follow with some unspecified changes.

Bank Plan

“The anti-crisis push means we will continue with the bad bank plan, with the creation of a state-asset holding company and with the consolidation of finances,” Bratusek said today.

Nova Ljubljanska d.d., Slovenia’s biggest lender, reported a loss of 275 million euros in 2012, its fourth-consecutive negative result. Nova Kreditna Banka Maribor, which had a 205 million-euro loss last year, fell to the lowest level since its 2007 listing after a debt-equity swap increased the government’s stake to 79 percent. The shares plunged more than 40 percent last week and were down 0.2 percent today at 80 euro cents in Ljubljana.

Moody’s Investors Service on March 25 cut Nova Kreditna Banka Maribor d.d.’s long-term deposit rating two levels to Caa2 from B3, with a negative outlook, on a weakened credit profile and the need for additional capital.

Nova Ljubljanska needed 381 million euros last year, with Slovenia and its agencies providing all of the money, after its second-largest owner, KBC Groep NV, withdrew from the transaction because it failed to win approval from the European Commission.

Tapping Markets

The government plans to tap international markets to help its finances “depending on market sentiment” and “in line with the program of financing with instruments foreseen in the program,” the Finance Ministry said in a response to e-mailed questions from Bloomberg News today. It gave no details.

Slovenia, rated A- at S&P, last tapped the U.S. debt market in October with a $2.25 billion bond sale. It considered selling more dollar-denominated debt in January, according to former Deputy Finance Minister Dejan Krusec.

The country adopted the euro at the start of 2007, becoming the first post-Communist European nation to make the switch. Pumping out exports such as household appliances from Gorenje d.d., the small open economy outperformed that of Europe’s common currency area for most of the past decade.

A debt crisis that has swept the continent since 2008 damped demand for consumer goods, pushing the economy into two recessions over the past four years. Gross domestic product shrank 3 percent from a year earlier in the fourth quarter, its third consecutive contraction.

© Copyright 2014 Bloomberg News. All rights reserved.

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