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Slovenia’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

The Slovenian economy grew by 4.5% in 2018, with prospects for solid though somewhat slower growth rate in 2019 and 2020 when forecasted rates are expected to moderate at 3.1% and 2.8% respectively. The contribution of domestic demand to growth is expected to dominate the net exports effect, which is forecasted to turn negative in 2019 and 2020. The most important components of growth are projected to be investments, rising by 7.7% and private consumption up 2.9% in 2019, supported by a higher disposable income and employment. Despite the constrained export growth conditions, the current account balance is projected to grow at roughly 3% annually, with a surplus at roughly 6% of GDP. The fiscal position of the country is still improving, since the general government balance is expected to reach a surplus of 0.7% of GDP and general government debt is expected to further decrease to 65.9% of GDP in 2019.

As of year-end 2018 there were 12 commercial banks, three savings banks and two branches of foreign banks operating in the Slovenian banking sector. The total assets of the banking system increased by 2.2% in 2018 and reached €38.8 billion, equivalent to 84.4% of GDP, but still €13.2 billion short of the total banking assets volume at the end of 2009, when the banking sector assets represented 146% of GDP. While the number of banks in the market did not change in 2018, the state-owned market leader Nova Ljubljanska banka (NLB) was partially privatised through an IPO in November 2018. This means that only 35% of the shares of NLB are still held by the state, with the prospect of 10% more shares being sold by the end of 2019 as part of the restructuring programme. The privatisation process for Abanka has been initiated but is not yet completed, while the deadline is expected to expire by the end of 2019. At the beginning of May 2019, Société Générale announced a withdrawal from the market by selling the local subsidiary SKB bank to the Hungarian group OTP, which is going to become a new player in the market. Further consolidation is expected in the Slovenian banking market, yielding fewer banks and very likely increased market concentration.

Strong economic growth and positive sentiment were reflected in the sustained credit activity of banks throughout 2018 with a slight but not substantial slowdown in Q4 2018. Nevertheless, the overall growth rate of loans to non-bank borrowers was 3.3% in 2018. Loans to non-financial corporations (NFCs) grew by only 2.2%, while the growth of loans to households was significantly stronger at 7%. However, consumer loans grew by 11.8% in 2018, while housing loans grew by 4.7%. Consequently, loans to households represented 26% and loans to NFC, 21.8% of total assets at year-end 2018, which differed substantially from the proportions recorded in 2008, when loans to households and NFCs amounted to 15.8% and 42.3%, respectively, of total assets. Banks successfully restructured their assets and improved the quality of their exposures. The process continued throughout 2018 as banks managed to further reduce their overall non-performing exposures (NPEs) to 4.0%. The trend also carried into the beginning of 2019 when the NPE ratio decreased further to 3.7%.

On the deposit side the influx of deposits continued in 2018 as non-banking sector deposits increased by 5.3%. Household deposits, with 6.8% growth, was the fastest growing segment, while growth in NFC deposits slowed to 6.6%. Household deposits accounted for an impressive 48.3% share of total liabilities and together with NFC deposits (17.5%), government deposits and deposits of other financial institutions, total deposits all together represented 74.7% of total banking sector liabilities.

The profitability of banks increased for the fourth consecutive year since 2014 with return on equity of 11.09% in 2018. The current profitability of banks is beneficially impacted by the quality improvement of the banks’ credit portfolios and a net release of impairments and provisions. On the other hand, there is a persistent long-term trend of decreasing net interest margins which dropped from 4.9% in 2000 to 1.8% in 2018, and resulted in a gradually declining share of net interest income in the gross income of banks. As a result, banks are trying to enhance non-interest income, which in 2014 represented roughly one-third and in 2018 was slightly more than 42% of gross banking income in the banking system. The changing income structure can also be considered as a reflection of the ongoing transformation of the business models in Slovenian banks.

The banking system is well capitalised, although capital adequacy differed among banks. The Core Equity Tier 1 capital ratio for the banking system stood at 20.2% in Q3 2018, while the same ratio was only 12.9% for small domestic banks and 25.6% for the group of large domestic banks. Currently, most of the banks are able to maintain a relatively strong capital position due to the potentially retained earnings that could be generated through the advantageous performance of the banking system in 2018. The expected consolidation processes and potential cost savings in the banking system should enhance the robustness of the banking sector in the future.

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

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