Emerging Europe: Slovenia bailout ‘the last one’ says central bank
Privatization a “great opportunity”; Credit demand remains weak
Slovenia is heading for a speedy exit from its state-dominated and crisis-prone banking sector after a €3 billion bailout in December, central bank governor Bostan Jazbec tells Euromoney. "The bill we have had to pay for all the mistakes in the management of state-owned companies, and in particular the state-owned banks, has been huge," says Jazbec.
|Slovene central bank governor Bostan Jazbec|
"I believe there is now the consensus among policymakers to ensure that the bill for the last recapitalization will be the last one to come from the pockets of Slovenian taxpayers." Following publication of results of the most recent independent asset quality reviews and stress tests, in December the Slovenian government recapitalized the country’s three largest banks to the tune of €3 billion. It also earmarked €4.6 billion of non-performing loans for transfer to a bad bank, the Bank Asset Management Company (BAMC).
Nova Ljubljanska Banka, Nova KBM and Abanka – which between them comprise more than 40% of the Slovenian banking system by assets – are now due for privatization by the government. According to Jazbec, this offers a "great opportunity" to foreign banks already present in Slovenia and those looking to improve their network in the region.
Jazbec reckons the size of the latest bailout required by the country’s state-owned banks has focused policymakers’ mindson reform. However, analysts are sceptical of policymakers’ commitment to restructuring and selling state assets, and in its January report the IMF described the risk of delays to privatization as high.
Gunter Deuber, head of research for central and eastern Europe at Raiffeisen, complains there "seems to be no political will to go for large-scale privatizations". He further notes that the Slovenian economy is yet to emerge from a two-year recession and non-performing loan ratios are still rising. Ruling out more bank losses and needs for recapitalization may be premature, he says.
James Howat, Europe economist at Capital Economics, agrees: "One of the underlying causes of the crisis in Slovenia was political interference in lending decisions and there is still latent opposition to bank privatization, not least because of the risks associated with selling state assets during a recession."
Jazbec says the results of the most recent of asset-quality reviews and stress tests were "consistent, credible and transparent" and that the assessment and recapitalization process has "provided the necessary clarity on the value of the banking sector". He says: "We now have a much better and sounder basis for talking to potential investors."
But Howat says the appeal of Slovenia’s banking market for foreign players "will likely be limited in the near term". The market, he says, is small even by regional standards (the country has a population of just 2 million and its GDP of €37 billion is the smallest in central Europe) while domestic credit demand is likely to remain subdued in the near term.
Although most analysts endorse Bank Slovenije’s forecast that economic growth will resume in the fourth quarter, the recovery is expected to be almost exclusively export-led. And as Deuber notes, Slovenia’s heavily indebted companies – the origin of the country’s banking crisis – still need to deleverage.
According to an IMF report in January, Slovenian corporates’ average ratio of interest payments to earnings is around 90%, while firms that have interest bills exceeding earnings account for 16% of total employment. Weak employment growth and austerity measures aimed at bringing the budget deficit under 4% of GDP this year will put more pressure on households’ appetites to spend.
Deuber agrees that the western European players that dominate banking in CEE are unlikely to play a large part in Slovenia’s bank privatizations. As he points out, most are busy "optimizing their regional footprint" – industry shorthand for focusing on larger and more lucrative markets and pulling back from less profitable subsidiaries – and shoring up their capital position.
Two of the four big regional banks already present in Slovenia have effectively ruled out involvement in Slovenia’s privatization process. In January, Raiffeisen confirmed plans to "continue its rescaling activities" in Slovenia. UniCredit, which has the largest share in the market among the foreign banks, is also focusing on "organic growth" in Slovenia, according to its regional chief.
The other foreign players in Slovenia, Intesa Sanpaolo and Société Générale, had yet to indicate their intentions at press time. Nevertheless, Deuber concedes the Slovenian bank market might have greater appeal for players – possibly from outside western Europe – looking to get a banking licence within the eurozone.