Slovenia’s banking sector: Facts & Figures
Updated December 2020 – For earlier editions of Facts & Figures click here
Throughout the entire year 2019 the growth rate of Slovenian economy decelerated gradually and slowed down from 4.1% in 2018 to 2.8% in 2019 although it still remained well above the average growth rate of 1.2% in the Euro area. Growth was mostly driven by a relatively strong domestic demand and despite declining foreign demand the current account surplus was up by 22% at the end of 2019 as compared to 2018, which resulted in a total surplus representing 6.6% of GDP. The unemployment figures were further improved in 2019 and so was the average gross wage, which nominally went up by 4.3%. The inflation rate, with HICP of 1.6%, was notably higher than the euro area inflation in 2019. The fiscal position of the country was in a fairly good shape as of the end of 2019, since general government balance improved to +0.5% of GDP and general government debt further decreased to 66.1% of GDP.
As of year-end 2019 there were 12 commercial banks, three savings banks and two branches of foreign banks operating in the Slovenian banking sector. Total assets of the banking system increased by 6.3% in 2019 and reached €41.2 billion at the end of the year, which was the equivalent to 85.8% of the GDP. After the privatization of the first and second largest bank in the country in the 2015-2018 period, government put on sale Abanka in 2019. In June 2019 Abanka was acquired by the previously privatized NKBM and with the deal finalised in February 2020. Following the completion of all legal procedures, on 1st September, the second largest bank in the country was created, with a market share of 21% of total assets. A significant change in the ownership structure also took place in the SKB banka (7.3% market share by total assets), where French Société Générale decided to withdrew completely from the ownership structure and the bank was eventually sold to the Hungarian group OTP, a newcomer to the market. The deal was signed in May and completed in December 2019.
Despite the fact that the year-on-year growth in loans to the non-banking sector, with 5.8% annually, exceeded the growth rate in 2018 by 250 basis points, a recess in credit growth towards the end of the year was noticeable, both as a result of slackened growth in corporate loans and decelerated credit activity as regards households. A slowdown in growth of loans to households, from 7% in 2018 to 6.2% in 2019, seemed to be unavoidable as the central bank decided to implement some binding macroprudential restrictions on household lending in November 2019, with the aim of mitigating and preventing excessive credit growth and excessive leverage. The two binding restrictions imposed by the Bank of Slovenia focused, firstly, on setting a cap on the ratio of annual total debt servicing costs to the consumer’s annual income (DSTI) and, secondly, on a maturity cap for consumer loans. Consequently, according to the data collected by the Bank Association of Slovenia, the impact of the implemented measures was quite severe as the volume of consumer loans extended to customers in November and December, reached barely 40% of the October volume, while in the case of housing loans this proportion stood at roughly 60% only. The strong drop was also confirmed by the official statistics on household lending, published by the Bank of Slovenia. The measures represent a significant restraining factor when it comes to households crediting.
As regards the quality of the overall credit portfolio it further improved in 2019 as the share of claims, more than 90 days in arrears, decreased to 1.5% and NPE ratio settled at 2.6% towards the year end of 2019.
A heavy reliance on the deposits by the non-banking sector remains the main characteristic of the banks’ funding structure. The growth in non-banking sector deposits was strong and stable and reached 7.2% at the end of 2019, while the rate of increase in households deposits was even stronger and stood at 8.7% at the year end. Consequently, deposits of the non-banking sector represented 75.4% of total liabilities and the proportion of sight deposits increased to 74% of total non-banking deposits in 2019. While deposits represent a reliable, cost effective and relatively stable source of funding, banks need to focus on the adequate management of the maturity gap as it represents a potential source of funding risk in the future.
Profitability of the banks in Slovenian banking system has increased for the fifth consecutive year since 2014 and stood at 12.26% as measured by ROE at the end of 2019. The improved profitability can be attributed to the enhanced quality of the banks’ credit portfolio and a net release of impairments and provisions. However, the income risk at the level of the banking system has been assessed as elevated, especially because of the persistent low interest rate environment and decreasing lending activity. To a large extent, low interest rates are recognized as a major reason for a declining trend in net interest margins, which decreased again in 2019 and reached 1.79% at the end of the year.
The banking system is still well capitalized, although differences exist among the individual banks and savings institutions. The total capital adequacy ratio increased to 18.1% in first half of 2019 and was on a par with the euro area average on a consolidated basis, while the common equity Tier 1 capital (CET1), with 17.6%, substantially exceeded euro area average in the same period. A favourable capital position and sound structure of their credit portfolio may represent a good foundation for the challenging times ahead for Slovenian banks.
Contributor: Marko Košak firstname.lastname@example.org