Slovenia’s central bank chief said the bad loans held at the country’s banks are less than analysts estimate and the country can avoid a bailout if the government adopts swift policy changes, including privatization.
Bank of Slovenia Governor Marko Kranjec said the banks’ bad loans total between 3 billion euros and EUR3.5 billion.
Mr. Kranjec’s estimate is lower than that of some experts, including Citigroup Inc.’s Jaromir Sindel, who said the cost to shore up the country’s lenders is likely to run between EUR3 billion and EUR4 billion.
Slovenia, one of the smallest countries in the euro zone and one of Eastern Europe’s high achievers, is being closely watched by investors and has been increasingly seen as the next likely bailout recipient. Investors are concerned about the health of its banks and the potential cost to the government of cleaning them up.
Last week, the Organization for Economic Cooperation and Development said that the Slovenian government’s 1 billion euros estimate for the banking sector clean up were grossly underestimated.
The IMF in March estimated the recapitalization needs for the country’s three largest banks at around EUR1 billion for this year. But the fund said deteriorating economic conditions could increase the need for capital in the years ahead.
“The first step is to determine the size of non-performing loans,” said Mr. Kranjec, who also sits on the European Central Bank’s governing council. Some EUR7 billion of loans are overdue more than 90 days, but 60% of the amount has already been provisioned for. The net amount would range between 10% and 12% of gross domestic product, which is EUR35 billion.