(Corrects to show Slovenia is a former communist country)
* Banks' bad debts of about 7 bln euros equal 20 pct of GDP
* Minority government trying to set up "bad bank"
* October sovereign bond issue averted bailout until June
LJUBLJANA, Feb 12 Slovenia, struggling to avoid
an international bailout, must recapitalise its state banks and
then sell them, central bank governor Marko Kranjec said in an
interview published on Tuesday.
Bad debts totalling about 7 billion euros ($9.37 billion),
or 20 percent of GDP, in the mostly state-owned banking sector
are at the heart of the speculation that the euro zone country
may have to apply for a bailout within months.
The government is setting up a bank to take on state banks'
defaulted-on loans in exchange for state-guaranteed bonds, but
Kranjec said that was not enough to solve the sector's woes and
that privatisation was the only long-term solution.
"The government will have to increase the state banks'
capital ... and then sell them, I see no other option," he told
Bancni Vestnik monthly magazine.
"Results have showed that banks in state ownership are the
worst managed... Problems will be gone if banks get responsible
owners," said Kranjec, who is also a member of the European
Central Bank Governing Council.
No one at his office was immediately available to comment.
Kranjec, whose mandate ends in July, also called for a sale
of state firms in other sectors to improve profitability and
management. Slovenia has been slower in selling state assets
than most other former communist countries, keeping most of the
energy, insurance and telecommunications sectors in state hands.
The establishment of the so-called "bad bank", which Prime
Minister Janez Jansa's conservative government sees as a crucial
part of its reform plan, was delayed in January when the
goverment lost its majority in parliament.
A junior coalition party, the Civic List, quit the cabinet
last month over a corruption scandal involving Jansa. Two other
parties plan to follow suit in the coming weeks, which would
leave the government with only 30 out of 90 seats in parliament.
Jansa, who has denied any wrongdoing, has pledged to stay as
leader of the minority government but opposition parties are in
talks to nominate a new prime minister. No candidate has come
forward so far.
In October, the country issued its first sovereign bond in
19 months, averting the need for a bailout at least until June.
($1 = 0.7474 euros)
(Reporting by Marja Novak; Editing by Louise Ireland and Zoran