July 12, 2013 / 12:35 PM / 5 years ago

New blood at Slovenian central bank at moment of crisis

* 43-year old Jazbec 30 years younger than predecessor

* Experience with IMF, EBRD

* Must overhaul suffocating Slovenian banks

* Will sit on ECB’s rate-setting council

By Marja Novak

LJUBLJANA, July 12 (Reuters) - When Marko Kranjec became governor of Slovenia’s central bank in 2007, the country had just joined the euro zone and was the bloc’s fastest growing economy. His successor, Bostjan Jazbec, inherits a banking sector on its knees.

The bespectacled economist takes over on Tuesday with the mammoth task of overhauling state lenders teetering under the weight of billions of euros in bad loans that threaten to make Slovenia the latest member of Europe’s single currency to seek an international bailout.

At 43, Jazbec is 30 years Kranjec’s junior. He was still studying at Ljubljana’s Faculty of Economics when the Alpine republic slipped away from socialist Yugoslavia in 1991 and took the fast lane to Western integration while the rest of the federation dissolved into war.

A member of the European Union since 2004 and the euro in 2007, Slovenia’s transformation appeared dramatic, but it was only skin deep.

The state kept control over half the economy, allowing a culture of cronyism and mismanagement to flourish and which was only exposed when the global economic crisis slashed demand for Slovenia’s vital exports of household appliances and Renault cars and the country slid into recession.

Among a cosy elite dominated by old faces, Jazbec represents a new generation. As bank governor he will have a say in the sale of No. 2 lender Nova KBM, one of the big state banks that have been a rich source of lending for politically-connected businessmen.

He’ll also be watched closely for his twin role on the rate-setting governing council of the European Central Bank.

“I think he will broaden the views of the (Slovenian) central bank, modernise it and make it take a more active role in overhauling the banking sector,” said Borut Hocevar, an analyst at the Slovenian daily Finance.

“I first met Jazbec when he was a very ambitious and determined student of economy, who stood out because he was not afraid to dispute older and established economists,” he said.

Jazbec’s first task will be to oversee the ring-fencing of 3.3 billion euros ($4.3 billion) of non-performing loans from Slovenia’s three biggest state banks into a newly-established ‘bad bank’.

The government had hoped the first transfer would go through in June, but the operation has been held up by concerns at the European Commission that the central bank has underestimated the scale of the bad loans suffocating the sector.

Brussels is waiting on the results of an external audit of the banks, but any prolonged delay will only sow more doubt in financial markets that Slovenia can do what it takes to avoid following Cyprus in the queue for a bailout.

NO EASY TASK

The central bank says the sector is nursing some 7 billion euros in bad loans, equivalent to 20 percent of gross domestic product (GDP), the majority held by the three main state banks.

The country of 2 million people, squeezed between Italy, Austria and new EU member Croatia, also has to recapitalise the three banks to the tune of 1 billion euros, taking the budget deficit to a yawning 7.9 percent of national output this year.

The sale of Nova is part of a privatisation drive aimed at easing the burden on the budget.

Slovenia bought some time in May with two sovereign bonds worth a total of $3.5 billion, but will have to tap markets again later this year or in the first quarter of 2014 before a 5-year 1.5 billion euro bond expires on April 2.

Jazbec spent five years on the board of the central bank, between 2003 and 2008, having taught at the Faculty he graduated from. But he also brings with him solid experience in international banking institutions, including projects involving the European Bank for Reconstruction and Development, the World Bank and the Bank for International Settlements.

From 2009 to 2012 he served as a senior adviser, hired by the International Monetary Fund, to the governor of the central bank of Kosovo, the last state to emerge from Yugoslavia when it seceded from Serbia in 2008.

Jazbec was not available to comment for this story, but told Reuters in April - after his confirmation by parliament - that he was confident Slovenia would salvage itself.

“Slovenia has relatively low debt but needs to consolidate its budget and overhaul its banking system,” he said. “I think Slovenia can manage without international help.”

At the ECB, Kranjec styled himself as an anti-inflation hawk, but his role in bank policy was opaque. There is little in Jazbec’s CV to suggest what line he might take. Slovenia’s woes are likely to dominate at least the first years of his tenure.

“He’ll have to supervise the Slovenian banks to ensure financial stability, which will not be an easy task,” said Ivan Ribnikar, a retired economics professor who was Jazbec’s university mentor and a colleague on the central bank board.

“He was a very good student,” Ribnikar told Reuters. “I believe he has the knowledge to do well.”

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