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INTERVIEW-Slovenia not out of the woods, warns bank governor

Source: Reuters - Fri, 13 Dec 2013 05:19 PM
Author: Reuters
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By Laura Noonan and Matt Robinson

LJUBLJANA, Dec 13 (Reuters) - Slovenia, saved for now from seeking a bailout for its banks, cannot rule out needing a rescue in the future if its economy worsens, its central bank governor told Reuters on Friday.

Governor Bostjan Jazbec said the country could not afford to evade painful changes needed to rebuild the economy.

The former Yugoslav republic announced on Thursday that its eight biggest banks need 4.8 billion euros ($6.6 billion) in extra capital, a sum it said could scrape together without becoming the latest euro zone nation to seek a bailout.

"Of course, if things really seriously deteriorate in the following months, one can never put away the threat (of a bailout)," Jazbec said in an interview.

He underlined the challenges ahead for an economy that has fallen far from its former status as the star graduate from Europe's ex-communist east.

But speaking with enthusiasm matching the colourful artwork on his office walls, Jazbec said nobody could question the final result of Slovenia's long-awaited banking review, the work of four international consultancies.

The exercise will leave Slovenian banks with some of the strongest balance sheets in Europe, he said, although whether they remain strong would depend on reviving an economy currently not expected to return to growth until 2015.

"If we do not see very soon positive sentiment in the real sector of the economy, then I'm afraid we could really follow the most adverse scenario," he said, in reference to the worse-case scenario that the banks were capitalised to deal with.

"The banking system is nothing but the mirror image of everything that is happening in the real sector of the economy, and the real sector of the economy in Slovenia is lagging behind the averages of the euro zone," Jazbec said.

Slovenian exports, the backbone of its economy, hit a wall with the onset of the global downturn, leaving its mainly state-owned banks nursing some 9.5 billion euros in bad loans. The central bank expects economic output to shrink by 2.6 percent in 2013 and 0.7 percent in 2014.

RISK OF BACKSLIDING

The banking sector and economy have both been dogged by a hangover of state ownership dating from Slovenia's roots in federal Yugoslavia, and which successive governments have failed to tackle.

Before Thursday's announcement, the government had already promised to sell 15 state-owned companies including Nova KBM , the country's second largest bank, and Telekom Slovenia. This week it also promised to sell up to 75 percent of Slovenia's largest bank, NLB, and all of the third biggest player, Abanka.

Privatisation, however, is politically sensitive, with many voters in the country of 2 million people dependent on state-owned companies for jobs. They fear redundancies when the companies pass into private hands.

The coalition government has vowed to press ahead with the sales, but analysts and Slovenia's euro zone peers are wary of backsliding.

"We have a problem of governance in state-owned companies," said Jazbec.

"The only solution ... for solving the problems of inefficient or ineffective governance in state-owned companies is privatisation, and this is where I believe efforts should be invested very soon and in the most transparent way," he said.

"The very, very crucial factor will be political support for all the reforms the government wants to implement."

He conceded, however, the danger that privatisations, and other cuts made by the banks, could hurt the real economy.

For now, the 43-year-old, who took the governor's chair only in July, hopes the narrow escape from an international bailout will serve as a warning to the government and aid him in keeping Slovenia's finances on the straight and narrow.

He said the question of whether enough had been done would "linger" over him as an incentive "not to let things go in the wrong direction."

($1 = 0.7283 euros) (Writing by Laura Noonan; Editing by Matt Robinson/Ruth Pitchford)

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