IMF Urges Urgent Recapitalization of Slovenia’s Banks

The head of the International Monetary Fund’s mission to Slovenia emphasized on Monday the urgent need for the country to recapitalize its banks. As Slovenia works to avoid becoming the sixth eurozone member to seek external financial help, the bloc faces challenges in recovering from a recession.

Antonio Spilimbergo, the mission chief, stated in a press conference, “Bank recapitalization is an urgent issue that must be addressed immediately.” The IMF report highlighted that Slovenia is grappling with a severe recession characterized by a damaging cycle of pressured corporate and bank balance sheets, weak domestic demand, and necessary fiscal consolidation.

Slovenia’s banking sector, predominantly state-controlled, is burdened by approximately EUR 8 billion in non-performing loans, which represent about one-fifth of the country’s annual economic output. The three main state-owned banks—Nova Ljubljanska Banka, Nova Kreditna Banka Maribor, and Abanka Vipa—account for nearly two-thirds of Slovenia’s banking assets.

To prevent larger financial institutions from facing runs, the government placed two smaller private banks into liquidation earlier last month. Bostjan Jazbec, the head of Slovenia’s central bank and a member of the European Central Bank’s governing council, has expressed confidence that the country can recapitalize its banks without requiring a bailout.

The government has allocated EUR 1.2 billion to assist in the recapitalization of its principal banks, though analysts are concerned that the capital requirements may be substantially higher. Results from external bank stress tests are expected by the end of November.

In a bid to avoid a bailout, the government is implementing a series of reforms, including tax increases, spending cuts, and privatizations. Last week, Jeroen Dijsselbloem, the head of the Eurogroup of finance ministers, noted that the eurozone stands ready to support Slovenia, but reiterated the importance of continuing fiscal reforms.