Slovenia would liquidate two small banks to ensure financial stability of its banking system. The country would liquidate two small lenders, Probanka and Factor Banka according to officials said last Friday.

A statement was issued by the finance ministry and the central bank that said the government provided guarantees for the liquidation of the two lenders. The guarantees totaled EUR490 million for Porbanka and USD540 million for Factor Banka. This was to ensure that the banks' depositors would be paid.

Local banks had struggled with EUR7.5 billion worth of bad loans. This accounted to more than one fifth of the national output of the country. Local banks had also been the target of speculation that the country might follow other trouble EU members and seek an international bailout.

According to the central bank governor Bostjan Jazbec, who also sits on the European Central Bank's (ECB) governing board, depositors would not lose out in the liquidation process of the two lenders.

However, analysts said that Slovenia's action showed the country might be on the brink of a bailout.

Andraz Grahek of consultancy Capital Genetics said, "The costs of a possible bailout could exceed 10 billion euros if the government continues to cover losses even in small banks which are not of systemic importance and are not state-owned."