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Slovenia’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

With 5% real GDP growth rate Slovenian economy was the third-fastest growing economy of the euro area in 2017, next to Ireland and Malta. Growth was mostly driven by net exports, private consumption and private sector investment, while public investment contracted in comparison to 2016. The growth momentum is expected to continue in 2018 at 5.1% and 2019 at 3.8% with net exports and domestic demand being major factors. The contribution of net exports to growth is going to diminish from 1.3 percentage points in 2017 to 0.3 percentage points in 2019. Contribution of domestic demand is projected to remain relatively strong in 2018, 3.6% growth forecast in private consumption, 10% growth in investment. The unemployment rate is expected to fall further from 9.5% in 2017 to 7.2% in 2019. The fiscal position of the country has further improved with the general government deficit of 1.9% of GDP in 2016 projected to turn into a 0.5% surplus in 2018. At the same time, the general government debt to GDP ratio is expected to improve from 73.6% of GDP in 2017 to 69.3% in 2018.

As of the year end 2017 there were twelve commercial banks, three savings banks and three branches of foreign banks operating in the Slovenian banking sector. Total assets of the banking system increased by 2.4% in 2017 and reached €37.9 billion. This was equivalent to 87.7% of GDP, down from 93.2% in 2016, mostly due to GDP growth. Three out of five largest banks are government-owned: NLB with 25.6%, Abanka with 10.5% and SID (a development bank) with 7.1% market share as measured by total assets. NLB and Abanka are under the state aid restructuring programme and the government is committed to privatising them. The government has asked the European Commission for an extension of the deadline for the sales of NLB owing to the adverse effect of an ongoing lawsuit over Yugoslav-era deposits in Croatia unfavourably on pricing conditions. The new proposed deadline for NLB bank is set for the end of 2019.

In 2017, positive economic sentiment together with beneficial economic developments and persistently low interest rates stimulated borrowers’ demand for loans. However, loans to non-financial corporations (NFCs) grew by 2.2% year-on-year, while household loans increased by 6.8% in 2017. In the household sector, consumer loans increased by 12.9% while housing loans grew by 4.8%. Non-performing exposures (NPEs) declined to 6% of total loans in December 2017, while the NPE ratio for non-financial corporations remained at a relatively high level of 12.9%, despite its gradual improvement.

Non-bank deposits rose by 5.3% year-on-year in 2017, when the household deposits grew by 5.6% (in 2016 by 7%) and deposits by NFCs at 10.6% annually. Both household and NFC deposits together amounted to €23.9 billion or 63% of total banking sector liabilities. Roughly 70% of these were sight deposits, which contributed substantially to the liquidity and interest rate risk in the banking sector.

The capital position of banks remained strong both in terms of the amount and quality of bank capital, although capital adequacy differed among banks noticeably. At Q3 2017, the CET 1 capital ratio for the banking system, as a whole, was at 19.7%, while the same ratio for small domestic banks amounted to only 11.9% and, for the group of large domestic banks to a hefty 23.9%. Due to the strengthening credit activity of banks, regulatory capital requirements have been increased gradually and banks were mostly able to cope with increased requirements by optimising capital allocation and by retaining earnings coming from advantageous performance of the banking system in 2017.

The profitability of the banks in the Slovenian banking system increased substantially for the third consecutive year and stood at 9.54% as measured by return on equity at the end of 2017. The profitability of banks can be attributed to lower credit risk exposures and a net release of impairments and provisions. However, the banks’ gross income decreased in 2017 by 4.7% in comparison to 2016, which was a result of the decreasing level of net interest income (-2.7%) as well as net non-interest income (-7.3%). Banks are trying to enhance their income by increasing the volume of lending activity as the trend of declining net interest margins persists and the margin recorded at the level of the banking system was 1.7% at the end of 2017. Maintaining a satisfactory profitability for the future is going to be a challenging task as the room for cost efficiency improvements is rather limited, net interest margins remain depressed and banks, have to face a rather challenging and competitive environment.

Contributor: Marko Košak marko.kosak@ef.uni-lj.si

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