New Central Bank Governor Wants Efficient Banking System, Warns Against Overregulation

29. 08. 2013

New Central Bank Governor Wants Efficient Banking System, Warns Against Overregulation


Efforts to restructure Slovenia's ailing banks must be aimed at achieving an efficient and stable sector, Banka Slovenije Governor Boštjan Jazbec has told the STA. Suggesting this could require consolidation, he warned against excessive supervision by the central bank as a response to past mistakes.


The banking system must be fixed as soon as possible in order to support the economy on the path to recovery, Jazbec said in an interview with the STA. He expects that the first transfers of toxic assets to the bad bank will take place in October, although he maintains that the current delay in the transfer is not critical.

 

"From the point of view of restructuring and fixing of the Slovenian banking system, where state-owned banks play a dominant role - while the Bank Asset Management Company (BAMC) is also a state institution - it is completely irrelevant if recapitalisation is carried out or toxic assets are transferred to BAMC," said Jazbec.

 

Announcing that current assessments see the first transfer of toxic assets being carried out in October, four months later than originally planned by the government, Jazbec said that the delay has been caused by "procedures related to approving state aid".

 

"These are rules that are slightly complicated but can protect us against our own callousness," he said.

 

The ongoing bank asset reviews and stress tests being conducted as part of EU demands related to bank restructuring stem from the experience of European authorities in other countries, he said.

 

This could result in the current EUR 3.2bn estimate of the total value of toxic assets being revised somewhat, he said, adding it was difficult to say by how much.

 

Nevertheless, he does not think that Slovenia will have trouble with providing for the financing needs to fix banks, even if the EUR 1.5bn envisaged by the government for this task in this year's budget will not suffice.

 

"Even if this will not suffice, there are other means for securing additional funds. I think that at the moment this number is acceptable, especially in relation to the price at which assets will be transferred to the BAMC."

 

He stressed that the technicalities of the transfer process are not as important as the final benefits for the national economy and budget from the restructuring process. In this respect, he remains an optimist that an economic upturn in the EU could help facilitate restructuring.

 

"The trends are reversing and there are signs of recovery. Some would like it to be stronger, but for me the key thing is that we see a change in mindset in order to create the belief that we are headed in the right direction. This is also the case in Slovenia," he said.

 

"The best thing that we can hope for now is that the country can start to speak about an economic improvement which would follow that of a more marked upturn in the EU."

 

The key aim for Slovenia at this time is "to secure an efficient banking system which must be able to support the Slovenian economy". "This is why it is essential that we fix the banking sector and then provide for an economic upturn. This way all the other open issues, including limitations on the budget and the taking on of debt, will begin to sort themselves out."

 

According to him, all measures currently being undertaken to fix the banking system and restart the economy are focusing on convincing international financial markets that Slovenia is a credible debtor and that new debt will be used to restructure the economy rather than for fixing current problems.

 

In order to present a clear picture of the current state in the Slovenian banking system and dispel doubts about the extent of toxic assets, Banka Slovenije has ordered asset reviews and stress tests at 10 Slovenian banks which represent 80% of the Slovenian banking market.

 

Responding to criticism of the way Slovenia has tackled the banking crisis, Jazbec said that Slovenia's problems have been similar to those of other countries which faced trouble in the sector.

 

"The difference is that the available means for helping the banks are limited, as most of them are state-owned banks."

 

"This is why the whole story of fixing the banks through the BAMC is not very well understood among foreigners, given that the funds are being transferred from one state account to another state account and that we seem to be expecting a miracle to come out of this."

 

Assessing that Slovenia faces the question of whether it has too many banks, Jazbec indicated that the central bank would be ready to support processes that would lead to consolidation of the sector.

 

"I would like to see an efficient and stable banking system. Does this mean that this system involves having more or fewer banks or domestic and state-owned banks or foreign banks? This is a question that will foremost have to be answered by the market."

 

Moreover, he believes the result of efforts to improve efficiency will see a change in the ownership structure of banks and the economy as a whole. "I think that Slovenia must recognise that just as our exporters must compete against foreign rivals, Slovenia must compete for investors who can bring money."

 

"It is clear that the state has trouble with financing the current structure of the economy. The conclusion, therefore, is that greater efforts will have to be made for obtaining fresh capital with the aim of improving the efficiency of the economy."

 

Despite their current troubles, Jazbec believes that Slovenian banks are competitive. "If they were not, Slovenian savers would migrate to banks abroad. But we are not seeing this, although the export-oriented sector is beginning to use services of foreign banking systems."

 

Quizzed about the management of risk at Slovenian banks and the responsibility for the current problems, Jazbec warned against excessive supervision of the sector that is being demanded by some.

 

"I think that the same people who are the first to point to the role of Banka Slovenije in the mistakes in oversight are the same who would be the first to criticise Banka Slovenije if it were to have to approve every loan to businesses."

 

"The supervisors and owners are responsible for effective and proper functioning of banks. We can review individual credit portfolios, approved loans and deposits that have been approved under different interest rates. But in this case we no longer need the owners, supervisors or the management.

 

Jazbec also said that it was easy to "pass judgement with the benefit of hindsight". Asked whether the country could have done things differently in the past, Jazbec said that there is always more than one way of approaching an issue.

 

"This is a dilemma that every central bank faces. Obviously somebody had hopes that the banking system would begin to operate normally again. This possibility existed. As a governor I'm not interested in what happened in the past years, but rather where the banking system and economy will be in the future."

 

Meanwhile, Jazbec did not want to present his views on the government's economic policies. "I will take a pass on that. I think that the government is doing the right things the best way it can. We are working well with the government and the Finance Ministry."

 

Quizzed about whether Slovenia can still resolve its problems on its own, Jazbec responded: "Slovenia is always capable of resolving its own problems, the only question is at what price. There is always the dilemma of whether we are ready to accept a premium for dealing with the problems independently or whether there is a possibility for tackling them more cheaply with the help of somebody else."

 

 

He also downplayed the possibility that outside assistance would come with measures which would drastically reduce Slovenia's independence. "Do you think that in the case of international aid, representatives of European institutions would demand measures other than those we are currently trying to take?

 

"I think that in a certain way it may even be easier, as we would know that certain things have to be done. Currently this is being hindered by the possibility of negotiating measures independently coupled with the large number of stakeholders involved, who at times interfere unreasonably in efforts to solve problems."

 

While not wanting to comment on expectations regarding future European Central Bank (ECB) policy, he praised the forward guidance adopted by the bank as a means of responding to the crisis. "This is a step in the right direction, as most of the regulatory demands are related to past measures, but the economy is a dynamic thing which is future-oriented."

 

He also believes that efforts to establish a banking union are a response to the financial crisis and a "logical step to greater harmonisation of regulation and measure-taking in the Eurozone". "I think that this will be good for Slovenia as we will have a yardstick to directly compare effectiveness and the functioning of our banking system."

Source: The Slovenia Times

 

New Central Bank Governor Wants Efficient Banking System, Warns Against Overregulation