LJUBLJANA, Jan 9 (Reuters) - Slovenia will need to borrow 3.5 billion euros ($4.76 billion) this year to finance the budget and to aid consolidation of its ailing banking sector, the government said after a cabinet session on Thursday.
Slovenia told its European Union partners in December that it could save its sinking banks on its own, by cleaning up their bad loans and injecting fresh capital, thus avoiding yet another bailout of a euro zone member.
“The financing programme includes the possibility of borrowing for the purpose of financing the measures to boost banking stability,” the government said on its website. It gave no exact breakdown of how the 3.5 billion euros would be used.
Credit default swaps on Slovenia’s benchmark bonds, indicating risk premium, have fallen almost 20 percent in the past month, according to Markit data, after it became clear no outside aid would be needed for now.
The government said the primary financing source would be “long-term borrowing through issuing sovereign bonds”. It will also sell short-term debt through local treasury bill auctions.
Slovenia launched a state-financed rescue of its banks on Dec. 18, approving a 3.2 billion-euro capital boost for five lenders. The banks will also transfer their bad loans to a state-run ‘bad bank’ until the end of April.
The total cost of the bank overhaul was put at 4.8 billion euros ($6.6 billion), a figure arrived at after a lengthy review of the eight biggest banks, including three foreign-owned, by external auditors.
The government also approved a borrowing of up to 4.2 billion euros this year as budget pre-financing for 2015 and 2016, “depending on an estimate of the situation on the financial markets”. ($1 = 0.7353 euros) (Reporting by Almir Demirovic; writing by Zoran Radosavljevic; editing by Alister Doyle)