October 7, 2013 / 1:01 PM / 4 years ago

UPDATE 1-Slovenia minister says ESM aid might be sensible - STA news agency

LJUBLJANA, Oct 7 (Reuters) - A Slovenian government minister said it would be sensible for the country to seek aid from the ESM bailout fund if its banking system needs more new capital than estimated, a news agency reported.

According to the STA agency, Interior Minister Gregor Virant told reporters on Monday that tapping the European Stability Mechanism could be the cheapest way to overhaul local banks, which are nursing an estimated 7.9 billion euros ($10.7 billion) of bad loans - equal to 22.5 percent of gross domestic product (GDP).

Slovenia has to wait for the results, due in November, of external stress tests on most of its lenders before it can recapitalise its banks which are mostly state-owned.

The government has set aside 1.2 billion euros to inject into its banks but markets speculate the tests might show significantly larger bank capital needs.

Virant did not suggest what level of bank capital needs might prompt Slovenia to seek ESM help, STA reported. So far the government has claimed Slovenia would be able to solve its financial problems without external aid.

All euro zone members have the option of asking for financial aid from the ESM, established in 2012 after government debt crises escalated.

Last month Prime Minister Alenka Bratusek told Reuters the government had an obligation to find the cheapest solution for the bank overhaul but refused to discuss whether ESM aid may yet be the cheapest option.

Slovenia was the fastest growing euro zone state in 2007 but was badly hit by the global crisis due to its dependency on exports. It has been struggling with a new recession since 2012.

$1 = 0.7355 euros Reporting by Marja Novak; Editing by Ruth Pitchford

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