S&P pumps up the pressure on Slovenia

By bne IntelliNews August 6, 2012

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Ratings agency Standard & Poor's on August 3 followed Moody's by cutting Slovenia's long-term sovereign credit rating, piling more pressure on the country in international markets, and raising concern that it may be forced to seek help sooner rather than later.

Although S&P limited its cut of the country's credit rating to just one notch, moving it to 'A' from 'A+', the move still piles pressure onto Ljubljana. The move followed Moody's announcement on July 31 that it was slashing Slovenia's sovereign bond rating three notches to 'Baa2' from 'A2'. The ratings agency cited worries about the country's banking system, which is likely to face increases in non-performing loans, and the economy's rising vulnerability to shocks.

S&P also cited concern over asset quality at the country's banks and risks to planned structural reforms. Last month, the government's macroeconomic institute said local banks' bad loans had reached €6bn in the first quarter, and worried that they are likely to rise further.

"In our view, these factors are contributing to the sharp contraction in financial sector external funding and the sustained increase in the government's external funding costs," S&P said in a statement. The outlook remains negative, the agency said, meaning further cuts are in the offing. Fitch rates the country A, also with a negative outlook.

The Slovene government has denied it is facing urgent pressure to ask for international financial aid, but officials from Prime Minister Janez Jansa have also recently used emotive language and threats of a potential crisis to push policy through at home. The country's politicians have faced claims of improper behaviour in connection with the struggling banks. The government stepped in with €320m to recapitalise Slovenia's biggest bank, Nova Ljubljanska Banka, in June, with analysts saying others will likely need similar help this year.

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