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Slovenia to receive banking bailout bill

11 december 2013, 18:26
0
Slovenia's Prime Minister Alenka Bratusek. ©Reuters/Srdjan Zivulovic
Slovenia's Prime Minister Alenka Bratusek. ©Reuters/Srdjan Zivulovic
Slovenia is to learn later this week if it has enough money to shore up its banks on its own or become the latest eurozone country to need outside help, AFP reports.

The government and central bank will publish later this week -- the day is still unclear -- the results of EU-supervised stress tests of its banks which have become weighed down by assets that have lost value as the economy has been gripped by a long recession.

Slovenia has been dogged for months by worries that it could become the sixth eurozone country to be forced to seek aid, and as the moment of truth arrives there is a sense of confidence it can avoid an international bailout.

Observers seem to agree that the 4.7 billion euros ($6.5 billion) the government has set aside for recapitalising the banks will suffice.

The Delo newspaper estimated Slovenia will need some 4.2 billion euros. Other domestic media put the figure between four and five billion euros.

"Over the last eight months we have solved the main problems, extinguished the fire, now we need to develop a long-term strategy," centre-left Prime Minister Alenka Bratusek said ahead of the results.

"We know exactly what we need to do," she added, insisting Slovenia will not be the next country to seek international assistance.

Officials are not the only ones optimistic Slovenia will dodge the bullet.

"With solid cash buffers in place, a strong political consensus to avoid a bailout and improving economic activity, the fallout of the stress-tests is likely to be less negative than previously expected," ING economist Anthony Baert also said in a note Tuesday.

For Davorin Kracun, professor at Maribor University's economics and business faculty, the government's next steps will be crucial.

"The audit results by themselves will not have repercussions on the economy, they are just an accounting evaluation of how bad things in banks are," he told AFP.

"The main challenge for the government will be eliminating the obstacles to economic recovery," he added, a reference to the corporate debt overhang and lack of foreign investments in Slovenia over the last two decades.


Fixing the banks will not be enough


Hoping to raise some cash, Bratusek has visited Germany, France, Italy and Russia in the last few weeks seeking buyers for 15 state-owned companies that Slovenia plans to privatise, including the airport and telecommunications operator.

The central bank has said the three largest state-owned banks will be recapitalised before the end of the year and toxic assets will be immediately transferred to a "bad bank," enabling lenders to quickly resume the normal financing of companies.

Slovenia created a "bad bank" in 2012 to relieve lenders of an estimated 7.9 billion euros in risky assets and non-performing loans.

But the European Commission, fearing the true amount of distressed assets could be higher, requested it become operational only after the completion of independent audits.

The asset quality reviews and stress tests were initially launched on 10 Slovenian banks but the central bank in September announced two of them had to be liquidated.

Three out of the eight remaining -- Nova Ljubljanska Banka (NLB), Nova Kreditna Banka Maribor (NKB) and Abanka -- are owned by the state and will absorb most of the planned state money.

"The bank problem can be solved and Slovenia needs this sort of positive boost," said Cvetka Selsek, the head of Societe Generale's Slovenian branch SKB, in a recent debate on the banking system.

"The only thing I'm afraid of is that parties start fighting among themselves, thinking this (crisis) is the perfect stage for showing off instead of solving problems," she added.

Political bickering over how to handle the global crisis already brought down the government in 2011.

Bratusek's cabinet, in place since March, has also had to fight unions and the opposition over every proposed measure, including its action plan to stabilise the country and the 2014 budget.

In recession since 2011, Slovenia is only expected to see a slow recovery in 2015, when the government also plans to bring the public deficit below the EU ceiling of 3.0 percent of gross domestic product.

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