* Slovenia banks hit by bad loans
* Could be next euro zone state to be bailed out
* Eurogroup chief to visit for talks
* Bad bank expected to issue 4 bln euros of bonds
(Updates with governor quotes, details, background)
By Marja Novak
LJUBLJANA Slovenia's banks are weak and trust in
the system is limited, Finance Minister Uros Cufer told
parliament on Friday, as expectations grew that the country may
need financial help from abroad.
Slovenia's banks are crippled by at least 7.5 billion euros
($10 billion) of bad loans - more than a fifth of national
output - with stress tests set to reveal in November how much
help the sector will need.
Although it makes up only a tiny proportion of the euro
zone's economy, a bailout for Slovenia would fray nerves across
the continent with a reminder that the region's debt crisis was
not yet conquered.
The head of euro zone's finance ministers, Jeroen
Dijsselbloem, will visit the country on Sept. 30 for talks with
Earlier this month the Slovenian central bank began the
controlled liquidation of two small private banks in which the
state guaranteed all deposits in order to prevent a bank run.
"The decision for such a liquidation was right," said
finance minister Cufer.
"Any uncontrolled bankruptcy ... would be playing with
matches," he added. "The banking system in Slovenia is
relatively weak, trust in it is limited."
Central bank Governor Bostjan Jazbec, who has said
policymakers are reviewing the bailout option on a daily basis,
told the same parliamentary session that no other banks were
thought to be facing similar problems to the two being wound up.
He warned that Slovenia's taxpayers would face a bill of 15
billion euros if all the country's banks collapsed, but added
there was no sign that this was about to happen.
The government at present has deposits of 3.6 billion euros
in Slovenian banks and expects to spend a significant part of
those for the necessary capital injections in local banks
following the results of the external stress tests which are due
by the end of November.
So far three largest Slovenian banks, all controlled by the
state, said they needed capital injections in a joint amount of
some 1 billion euros but the stress tests, which are being
conducted in 8 banks, are expected to show higher capital needs.
A senior official from the European Bank of Reconstruction
and Development encouraged Slovenia this week to seek help.
But Cufer told Reuters on Wednesday that Slovenia was still
able to solve its problems by itself, without a
Slovenia plans to start transferring bad loans to the
state-owned 'bad bank' later this year, after the stress tests
are completed, with the bad bank issuing 4 billion euros of
bonds that will be given to banks in exchange for those loans.
Slovenia was the fastest growing euro zone economy in 2007
until the global financial crisis crushed demand for its
($1 = 0.7384 euros)
(Reporting by Marja Novak; Editing by Ruth Pitchford)