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Slovenia's Central bank has been more active in the restructuring of debt of non-financial companies. The Central bank, together with the banking association and the entrepreneurs representative, have been preparing a solution for indebted non-financial companies, particularly by prolonging the maturity profile for companies generating positive cash-flow (we calculate bank credit to non-financial companies is around 53% of GDP in early 2013, compared to 60% in 2010 according to the ECB statistics). We understand that there is a latent positive buffer to improve the situation as many of companies are not effectively managed. If this proposal loan restructuring with government guarantees succeeds, it could be incorporated in the Bad Bank operating tools and make the restructuring of the banking sector less demanding on cash-flow. This is in line with the recent central bank proposal Action to improve the business conditions for the real sector of 13 February 2013 that proposed conversion of banks claims into equity, among other points. Comment Though it can provide some relief and lead to an increase in efficiency of companies management, we are skeptical about a real success of these measures if not accompanied by privatization of the largest state-owned banks (we argue that without this step it would lead to the banking socialism). Having said this, we do not see a change in the main goals for the forthcoming government that will have to focus on the bad bank (BAMC) including possible bank loan restructuring, insolvency legislation and privatization of the banking sector to manage the bleak situation in banking sector, which is necessary given the ongoing credit crunch in the Slovene economy. The stock of banking credit to non-financials decreased by 8% YY in January 2013 compared to average -5% in 2012 (private loans were down by 6% YY in January 2013). In other news, the President Borut Pahor (previously SD) is consulting on a new central bank head and is expected to nominate his candidate, who has to be approved by the National Assembly, by early April. However, today the market will focus on the decision of centre-right wing party DL on whether to join a coalition government led by PM-designate Alenka Bratusek (PS) or not.
Export of goods accelerated to 3.3% YY in January from an average 0.8% in 4Q12 and assessment of export order books points to further acceleration in the near-term. January exports were mainly driven by non-EU demand that increased by 13.1% (non-EU exports represent 29% of total exports). This development in export activity gives a positive message, as export dynamics underperformed industrial activity in 2012 in our view. Moreover, February manufacturing confidence is supportive of export activity due to improved assessment of order-book levels suggesting export growth of around 5%-6% YY at the end of 1Q13. If this improvement materialises, it would support our forecast of a milder quarterly GDP contraction of 0.3% QQ in 1Q13 after -1% in 4Q12. Import growth accelerated as well to 4% YY in the first month of 2013 after an average 3.3% contraction in 4Q12, driven by a large individual transaction. As result, the trade balance showed a slightly wider deficit of €215mn compared to January last year however, the annual trade deficit remained at 3.3% of GDP (the balance of payments data show a narrower deficit of around 0.8% of GDP in 2012, with a current account surplus of 2.4% of GDP, due to a large surplus in trade in services).
lovenias Ministry of Finance has issued €111mn of t-bills likely still supported by stable liquidity in the banking sector. There was a lower yield at 0.49% for 3M t-bills compared to 0.75% in the auction a month ago that reflects higher demand at €215mn. The MinFin has not yet published details of buyers (usually a few days later in its Newsletter), but the February issuance of 3M and 6M t-bills was mainly bought by local banks, particularly by government-owned banks (the larger share of foreigners was for 12M t-bill at 20%). This probably reflects a more stable source of liquidity, as the liabilities of Slovene banks against the Eurosystem increased to 7.7% of their balance sheets in January 2013 from 3.3% a year ago (it decreased by 2% MM to €3.9bn in January 2013). Next t-bill auction is scheduled for 9 April. While MinFin faces negligible redemptions of €97mn in April (after €61mn in March) there are two larger redemptions this year of €1bn in June and €200mn in September, which we expect to be covered by the MinFin, given central government deposits of around €2.5bn at the end of January 2013 (according to ECB statistics), virtually unchanged compared to early 2012.
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