Full Frontal Of Slovenia's "Non-Performing" Moans

Ever since Cyprus hit the headlines, Slovenia has been close behind. Another small European nation with a banking system that dwarfs its GDP (though not on the scale of Cyprus). However, as we noted previously, it is not the size that matters, it is the precedent. The European leadership are desperate for the 'template' used in Cyprus - of haircutting all the way through the capital structure - not be used in Slovenia for fear the real world will see through their jawboning facade. Chatter continues that Slovenia can get out of this on their own - in some magical government-guaranteed reacharound - but, just as in Cyprus (where Non-Performing MLoans reaching 30-40% was the trigger for their avalanche), so Slovenia is there now.

However, while the 'average' is around 14% NPLs, the large state-controlled banks had over 30% NPLs at the end of 2012. The need for in excess of EUR1bn in recapitalization alone - though stress test results have been kept secret - and as the FT's op-ed notes, in order to appease global investors' fear that lessons have not been learned, government money (read taxpayer) should not be the first option, creditors should be bailed-in.

With Slovenia CDS stuck at six-month wides, it appears the market remains far more nervous either way.