Slovenia to liquidate two small banks as bailout looms

Fri Sep 6, 2013 4:01pm EDT
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By Marja Novak

LJUBLJANA (Reuters) - Slovenia - struggling to avoid an economic bailout - will liquidate two small banks, Factor Banka and Probanka, to ensure the financial stability of its banking system, the country's officials said on Friday.

A statement by the finance ministry and the central bank said the government had provided guarantees totaling 490 million euros ($645 million) for Probanka and 540 million for Factor Banka, to ensure the repayment of their depositors.

Local banks, struggling with 7.5 billion euros of bad loans worth more than one-fifth of national output, are the target of speculation that Slovenia may follow other troubled euro zone members and seek an international bailout in the coming months.

Central bank governor Bostjan Jazbec, who also sits on the European Central Bank's governing board, said depositors would not lose out.

He said they would be able to withdraw money as before, "with no extra limitations" and there was "no basis for a run on the two banks", the first lenders to crumble since Slovenia's economy went downhill in 2009.

"What we are doing is designed to increase security of the bank deposits and improve stability of the banking system," Jazbec told an evening news conference.

But analysts said the action showed Slovenia might be on the brink of a bailout.

"The costs of a possible bailout could exceed 10 billion euros if the government continues to cover losses even in small banks which are not of systemic importance and are not state-owned," said Andraz Grahek of consultancy Capital Genetics.   Continued...

A man walks past Slovenia's Central Bank in Ljubljana July 15, 2011. REUTERS/Srdjan Zivulovic