OECD warns about bad debt in Slovenian banks

LJUBLJANA (AFP) - The OECD sounded the alarm on Tuesday over the huge volume of bad debts strangling Slovenian banks but said that there was no immediate prospect of the country becoming the latest euro-zone member after Cyprus to need a bailout.

"Restoring the banking sector is the most urgent priority," the Organisation for Economic Co-operation and Development (OECD) said in a report.

The OECD said important reforms and ambitious fiscal consolidation measures had already been adopted but warned that they relied "too heavily on temporary steps, across-the-board cuts in the public sector". It welcomed the creation last year of a "bad bank" to ringfence risky assets but warned against a lack of transparency and potential political interference. It also recommended recapitalising viable banks but winding down those who cannot survive.

A bad bank is a financial entity that takes on risky loans and other types of assets at a discount to allow other banks to work their way back into the mainstream of interbank lending networks. The bad bank is often then closed down over time.

Slovenia's three-largest banks are owned by the state and have been recapitalised several times, and more capital injections are expected due to a high level of risky loans accumulated during the pre-crisis boom.

Slovenia's last government collapsed in February after a wave of protests against austerity cuts and corruption allegations against then prime minister Janez Jansa. A new government under Alenka Bratusek took office on March 20.

The new Finance Minister Uros Cufer said on Tuesday that the banking crisis was the government's top priority and added that the transfer of non-performing loans to the bad bank could start as early as the summer.

"There are no universal solutions for the bad bank concept, therefore we have to be pragmatic and efficient," Mr Cufer said at an official presentation of OECD's report in Ljubljana.

"The (bad bank) bill is operational and any possible changes to it can wait," Mr Cufer said.

OECD's deputy secretary general Yves Leterme said there was no immediate need for Slovenia to ask for international help despite the state of the banks and an expected 2.1 per cent slump in economic output this year.

"There is no reason to anticipate an immediate need for a bailout," Mr Leterme told journalists in Ljubljana, adding that Slovenia "has been able to meet its financial needs without difficulties so far".