LJUBLJANA Slovenia believes it can save its troubled banks and avoid a bailout even if it does not enforce a law to set up a bad bank, but acknowledges it would have to seek help next year if that plan fails, its finance minister said on Thursday.
The introduction of a law to set up a bad bank to allow Slovenia's banks to transfer non-performing loans to a state company has been stalled by a trade union demand for a referendum.
"There are several options of solving the problem (of bad loans) which we will consider ... but we believe the law is the most efficient and the fastest solution. I hope we'll solve the situation in the banks fast enough to avoid a bailout," Finance Minister Janez Sustersic told Reuters in an interview.
"If not, we would have to ask for help ... which could happen in the middle of the next year."
The amount of bad loans held by local banks, mostly state-owned, has been rising steadily since the economy plummeted in 2009. Non-performing loans reached 6.7 billion euros (5.4 billion pounds) at the end of September, equalling 19 percent of GDP.
Sustersic said he expected the Constitutional Court to rule by the end of this year to reject a trade union's demand for a referendum on a "bad bank" and enable the enforcement of the law.
The trade union for the chemical, non-metal and rubber industries is demanding the referendum, claiming the law would lead to the swift and non-transparent sale of state banks.
In October Slovenia issued its first sovereign bond in 19 months, averting a bailout for at least six months but the country has to repay about 2 billion euros of debt in the middle of 2013. That has raised market concern that it might have to follow euro zone peers Greece, Portugal and Ireland and seek an international bailout.
Sustersic said the government wanted to sell state-owned banks and other state assets, possibly as early as next year.
The government is considering selling telecoms operator Telekom Slovenije, insurer Zavarovalnica Triglav and fuel retailer Petrol. All three dominate the local market.
Unlike most other former communist states, Slovenia has kept a large number of companies in state hands, particularly in the banking, insurance and energy sectors.
The country of 2 million people, which joined the euro zone in 2007, was badly hit by the global crisis as its export-driven economy shrank in the face of dwindling demand, a lack of fresh loans and strained public finances.
In the past two weeks it also faced violent street protests against budget cuts and corruption in local and state governments which spread across most of the country.
Sustersic said he expected the protests to calm down after political parties put on a united front, allowing parliament to pass important legislation recently.
On Tuesday parliament approved a long-delayed pension reform without a single vote against it. The reform raises the retirement age to 65 from 58.
Last year a similar reform drafted by the previous centre-left government was rejected at a referendum demanded by trade unions. This led to the fall of the government and an early election that brought to power the conservative government of Prime Minister Janez Jansa.
On Thursday parliament passed budget plans for 2013 and 2014 which are designed to bring the budget deficit down to 3 percent of GDP the EU's official limit, from 4.2 percent seen this year.
However, Sustersic cautioned that the 2013 gap could end up above this target, depending upon how much money the government will have to spend for state guarantees and capital hikes to compensate for bad loans in state-owned banks.
"Regarding the size of bad loans we could need state guarantees for bad loans of up to 10 percent of GDP and capital hikes of up to 3 percent of GDP ... which would raise the budget deficit and debt in the year when we clean up the banks' portfolios," he said.
"We will be able to get most of these resources back in the medium term."
The country's largest bank Nova Ljubljanska Banka (NLB) said last week it might need another 375 million euros to increase its capital strength after receiving a state injection of 381 million euros in July.
(Reporting By Marja Novak; Editing by Zoran Radosavljevic and Susan Fenton)