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Slovenia’s banking sector: Facts & Figures

Updated December 2021 – For earlier editions of Facts & Figures click here

Last year’s developments were marked by the outbreak of a pandemic. In Slovenia, the economic crisis was slightly milder than expected and the adverse impact was below the euro area average, as GDP in 2020 fell by 5.5%, mainly due to a sharp decline in domestic private consumption and strong shock in the sectors reliant on foreign visitors while the situation in construction and industry was significantly better. Despite declining foreign demand, the current account surplus further grew and resulted in total surplus representing 7.5% of GDP in 2020 comparing to 6.6% of GDP in 2019. The situation on the domestic labor market also remained better than the euro area average, although it was deteriorating in response to the pandemic. LFS unemployment rate increased to 5% compared to 4.5% in 2019. The epidemic has opened large gaps between the labor market situation in the public sector and the private sector. While the gross wage bill in mostly public services in the first quarter was up 20.9% in year-on-year terms according to the national accounts amid rising employment and bonus payments in connection with the epidemic, it was down 0.9% in the private sector, driven by falling employment and lower earnings of employees included in job retention schemes. The crisis caused by the pandemic led to deflation last year, driven largely by the external environment, although domestic inflation factors were also getting continually weaker. Year-on-year inflation as measured by the HICP averaged -0.3% last year, down two percentage points comparing the previous year. The extensive anti-crisis measures have significantly worsened the fiscal position, although debt levels remained lower than in the euro area overall. The general government deficit in 2020 measured by ESA was 8.4 % of GDP, primarily on the account of the 12.9% rise in expenditure of measures to decrease negative effects of the pandemic, whereas the main factor was the measures on the labor market. At the end of 2020, the general government debt stands at 80.8% of GDP comparing 65.6% at the end of 2019, nevertheless, remaining significantly lower than the euro area average

Increasingly challenging business conditions for commercial banks in the euro area are forcing further consolidation of the European banking system. In 2020 the number of banks in Slovenia also further decreased by one due to the merger of Nova Kreditna banka Maribor, d. d., and Abanka, d. d. Following the completion of all legal procedures, on September 1st the second largest bank in the country was created, with a market share of 20.6% of total asset. As of yearend 2020 there were 11 commercial banks, three savings banks and two branches of foreign banks operating in Slovenian banking sector. Total assets of the banking system in 2020 further increased by 8,2 % and reached €44.7 billion at the end of the year comparing to €41.2 billion at the end of the 2019, which was equivalent to 96.5% of GDP. The main factor in increasing the total balance sheet of banks remains the deposits of the non-banking sector. Their last year’s marked increase is, together with the decrease in lending dynamics, reflected in the increase in the balances of the most liquid forms of receivables on bank accounts with the central bank.

As a response to the economic shock of pandemic non-financial corporations increased their saving while postponing investment, although they were already net savers before the new crisis on account of the increasing uncertainty in the international environment. The saving-investment gap in the total economy continued to be driven by households, who have been saving at even greater rate (including forced saving) since the outbreak of the pandemics. Household deposits, which account for two thirds of all deposits in the non-banking sector, increased by 10.2% last year, while corporate deposits grew even above average, reaching 18.9% in December. In particular sight deposits increased, accounting for 78.3% of all deposits in the non-banking sector in December 2020.

Due to the two binding restrictions imposed by the Bank of Slovenia in the last quarter of 2019, setting a cap on the ratio of annual total debt servicing costs to the consumer’s annual income (DSTI) and a maturity cap for consumer loans, the volume of consumer loans extended to customers already in November and December of 2019 decreased severely, reaching barely 40% of the October volume, while in the case of housing loans this proportion stood at roughly 60%. The strong drop was also confirmed by the official statistics on household lending, published by the Bank of Slovenia.

The decreasing lending trend was amplified with the pandemic and since August 2020 growth in corporate loans has been negative, reaching -1.4% year on year in December. Growth in loans to households slowed down further towards the end of 2020, reaching only 0.1% year on year in December. The rapid decline in growth was mainly due to a year-on-year decline in the volume of consumer loans (-7.8%), while the growth in housing loans amounted to 4.1% year on year in December 2020. In terms of credit quality as well as in terms of liquidity and capitalization, the Covid-19 crisis found Slovenian banking sector well prepared. At the end of 2019 the NPE ratio was 2.6%. Decreasing trend continued until September 2020. In October and November there was an increase in NPEs while they fell again in December due to increased bank resolution activities and had settled at the end of 2020 at 1,9%.

The capital adequacy ratio on a consolidated basis was 20.0% at the level of the banking system in September 2020 (the latest available data) and the CET1 ratio was 18.2%, both of which were above the euro area average. Until September last year, capital increased mainly due to profit retention, while risk-adjusted assets decreased due to a decrease in lending activity. The liquidity coverage ratio (LCR) increased to 325% at the level of the banking system, while the share of primary liquidity in the balance sheet total increased to 19.8% with a marked increase in deposits of the non-banking sector. The aggravated economic situation in Slovenia as well as in Europe and globally also affected the operations of the banking sector. When realizing macroeconomic risk in banks, credit and income risk are in the forefront.

In 2020 banks generated a pre-tax profit of €472 million, a fifth on the previous year. Pre-tax return on equity stood at 9.6%, comparing 12.26% at the end of 2019, but the return and the pre-tax profit were largely attributed to a one-off effect from the merger of two banks, without which profit would have been down more than a half of the previous year. Net interest income in 2020 decreased 6.4% on the previous year, primarily because of the slowdown in bank lending activity. Amid the increase in low-yielding assets, the net interest margin continued to decline, reaching 1.57% by the end of December. Net non-interest income increased last year, driven by the aforementioned one-off effect.  Net fees and commission, the most important component of net non-interest income, declined by 1.2% last year. Banks saw a moderate increase (of 1.3%) in operating costs in 2020, primarily as a result of a change in the classification of costs in connection with contributions to the deposit guarantee fund; otherwise, operating costs would actually have been slightly lower comparing the previous year. With one exception, all the banks recorded impairment and provisioning costs over the year, although these still accounted for a relatively low share of the generated gross income (12.5%).

Contributor: Aleksandra Zibrat aleksandra.zibrat@zbs-giz.si